THE IMPACT OF CROSS-COUNTRY TRANSPORTATION INFRASTRUCTURE ON TRADE AND INVESTMENT

Abstract

This paper investigates how cross-country transportation infrastructure projects impact on the trade and investment between the connected countries, by using the evidence from the China Railway Express (CR Express). CR Express is one of the key features of China's Belt and Road Initiative (BRI) announced in 2013 and these freight trains connect China and to the European countries directly. The scale of the project is massive, and described by the media as ‘a new chapter in the history of the centuries-old trading route’.

In this paper, the impact on trade is examined through two set of studies. First, the impact on the trade between China and the direct connected countries is studied. Second, the impact on the trade between countries that are connected within a line is studied. The studies include high-dimensional fixed effects: country-pair fixed effects and country-time fixed effects to address any potential endogeneity problem. The results show that the trade volume has grown by 6% for both study groups, after the operation of the CR Express. The increase is especially notable on the food products, machinery, electrical equipment and miscellaneous products. Moreover, the countries which are connected within a line experience an increase in the trade volume in wider range of sectors.

In addition, the railway connection has a positive effect on the number of investment received by the connected countries, and an increase in amount of investment in the logistics and autos sectors is observed after the connection of CR Express.