Tail-event driven network dependence in the Belt and Road: Effects of crises and initiative implementation

The Belt and Road Initiative has strengthened collaboration between China and the countries along its route, but it also presents challenges, including potential systemic risk spillovers among these nations’ stock markets. This study investigates the interdependence of tail risks across 37 Belt and Road countries using a tail-event-driven network approach and analyzes their clustering characteristics through a block model. Our results show that after the implementation of the Belt and Road Initiative, overall network risk becomes more dispersed. However, during five major crises, we observe significant increases in risk spillovers, marked by time-varying dynamics, asymmetry, and regional clustering. Notably, during most crises, China is not a primary source of risk in most crises, nor do East and Southeast Asian countries play a significant role as risk emitters or receivers. Since 2020, upper-middle-income and lower-middle-income countries have taken on more prominent roles in risk spillovers. We also identify trade channels as the primary conduit for risk transmission, while emphasizing the influence of public health crises and geopolitical conflicts. These findings are essential for understanding the effects of crises on financial markets and for supporting the sustainable and stable growth of the Belt and Road Initiative.