Growth and Trade Diversion Due to China's Belt and Road Initiative

China’s Belt and Road Initiative is a series of bilateral arrangements that facilitate infrastructure investments and promote trade between China and participating countries. The Initiative can increase the GDP of a participating country by providing financing for infrastructure investments, but it might also slow growth if it leads to problems with corruption and debt burden. The Initiative can reduce trade costs between a participating country and China by improving transportation infrastructure and connectivity, liberalizing barriers to trade, or enhancing the bilateral relationships in other ways. In this paper, we use a pair of econometric models to estimate the immediate and delayed effects of participating in the Initiative on a country’s GDP and its costs of trading with China. Then we use a structural gravity model to simulate the combined impact of these two effects on the bilateral trade flows of the United States, China, and Central Asian nations. For example, we estimate that participating in the BRI increased Kazakhstan’s total exports by 10.69%, its total imports by 15.40%, and its GDP by 11.06% in 2022. On the other hand, the BRI increased U.S. total exports by only 0.3% and reduced U.S. total imports by 0.09%. The BRI increased exports from China to Kazakhstan by 29.05% but only increased exports from the United States to Kazakhstan by 6.75%, while reducing U.S. exports to China by 5.29%.