Policy Research Working Paper 8815 Assessing the Value of Market Access from Belt and Road Projects Tristan Reed Alexandr Trubetskoy International Finance Corporation April 2019 Policy Research Working Paper 8815 Abstract The present value of market access from the Belt and Road projects provide market access gains. However, consider- Initiative in Eurasia does not exceed its costs. Many trans- ing the proposed new transport infrastructure as a system, portation projects are of little value because they fail to the share of projects that provide gains increases to almost create new least-cost paths between large population centers, two-thirds. International coordination and rigorous proj- or because they create redundancy with paths already on ect selection allow mutual benefit from the investment the network. If built in isolation, only about one-third of program. This paper is a product of the International Finance Corporation’s Economics and Private Sector Development Vice Presidency. It is part of a larger effort by the World Bank to provide open access to its research and make a contribution to development policy discussions around the world. Policy Research Working Papers are also posted on the Web at http:// www.worldbank.org/prwp. The authors may be contacted at treed@worldbank.org and trub@uchicago.edu. The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent. Produced by the Research Support Team Assessing the Value of Market Access from Belt and Road Projects1 Tristan Reed Development Research Group, World Bank Alexandr Trubetskoy Department of Statistics, University of Chicago Updated February 2021 JEL Classification Codes: R42, O18 Keywords: market access; transportation infrastructure; cost benefit analysis; Belt and Road 1 GIS shapefiles of the database of Belt and Road Initiative projects developed for this study are available here: https://github.com/sashatrubetskoy/bri_market_access. We thank Sam Asher, François de Soyres, Caroline Freund, Indermit Gil, Bert Hofman, Gabriel Kriendler, Somik Lall, Martin Melecky, Megha Mukim and Michele Ruta and participants at the Harvard Cities and Development conference for helpful comments. Robert Mwanamanga assisted with the compilation of Appendix A. The views expressed in this paper are those of the authors and do not necessarily represent those of the World Bank Group or its Directors. Correspondence to: treed@worldbank.org. 1. INTRODUCTION The Belt and Road Initiative is the largest infrastructure construction program of the current era, but it has been officially defined only in broad terms. The initiative is described in the Chinese government’s 13th Five Year Plan (Ch. 51) as an “all-around opening up in which China is opened to the world through eastward and westward links and across land and sea,” a reference to previous domestic reforms initiated by Deng Xiaoping in 1978. While Deng’s Open Door Policy welcomed the world into China, the Belt and Road are understood to carry the country’s influence out into the world, in part by building a new network of road, rail and port infrastructure to lower trade costs between China and its neighbors. Despite ambition for mutual benefit, concerns have been raised that certain projects are not economically viable, and will leave countries burdened by debt that cannot be repaid by incremental economic growth (Hurley, Morris, and Portelance, 2018; Financial Times, 2018, 2020). Though a literature has applied quantitative spatial equilibrium models to value transportation investments, which comprise many Belt and Road projects, these models have not yet been widely applied by policy makers in ex-ante project evaluation. Given limited transparency regarding the results of economic feasibility studies for Belt and Road projects, there is an opportunity for quantitative spatial equilibrium models to fill a gap. For this purpose, we develop an original geographic information system (GIS) database that identifies as comprehensively as possible all proposed, ongoing or recently completed road, rail and port projects along six strategic Eurasian corridors laid out in 2 two Belt and Road strategy documents published by Chinese government agencies, and complete an ex-ante economic evaluation of these projects.2 This paper does not seek to push the theoretical frontier in urban economics, but rather to apply widely-accepted frameworks to study the largest and most geo-politically consequential infrastructure construction program in recent history. To our knowledge, ours is the first analysis to systematically compare the potential economic benefits of individual Belt and Road projects. Project benefits are quantified in terms of expected changes in market access—the sum of the size of all markets on the transportation network, each weighted by the inverse of the ad-valorem trade cost needed to reach it. Theoretically, increases in market access lower the cost of consumption and the cost of production in a location, leading to an increase in the value of land in a location. Total 2 Open access GIS shapefiles of the BRI project database developed for this study are available here. These projects, whose names, locations and status (i.e., proposed, planning, under construction, operational) are listed in Appendix A, are located within 30 kilometers of at least 223 million urban residents, and span 23 different countries, which together produce 24 percent of global GDP. Excluding China, 22 countries and 9% of world GDP. Other estimates of the number of countries covered by the BRI are typically larger, as they include projects in Africa and Western Europe, which do not lie on the corridors identified in the two Chinese government documents on which we base our database. The nodes in our network include all cities described in the UN World Urbanization Prospects for 2015. Note that our database includes only transportation projects, which account for approximately 25% of BRI projects, the remainder of which comprise primarily electric energy projects, and select investments in chemicals, metallurgy and mining (World Bank, 2019). The value of non-transportation projects is outside the scope of this study. 3 land value generated summarizes a project’s benefit. Consistent with this idea, increases in market access have been shown empirically to predict growth in population (Redding and Sturm, 2008), land values (Donaldson and Hornbeck, 2016), and night lights (Alder, 2019). When valued according to expected changes in market access, approximately half of the 68 Belt and Road projects in Eurasia generate little benefit. Remarkably, this result holds regardless of assumptions about the economy (i.e., city income, factor shares, and the responsiveness of trade to trade costs) because projects fail to create new least-cost paths between population centers or because they create redundancy with paths already on the network. These results are validated by evidence that some projects expected to generate little market access have now been cancelled or scaled back by sponsors, and are consistent with a view that the Belt and Road program is guided by non-economic motivations. For instance, one view suggests that some default on loans associated with Belt and Road projects is desired by the Chinese government, since it would allow state-owned banks to foreclose on strategic assets, so called `debt-trap diplomacy’. An alternative explanation could be that local elites select bad projects based on their own interests (Lee and Hameiri, 2020). Having evaluated each project individually, we ask what economic assumptions one would have to believe such that all projects built in complement are worth more than total project costs, including the cost of those projects that provide least-cost paths to nowhere. This exercise evaluates the hypothesis that optimism about economic benefits, rather than non-economic motivations, could justify the investment program. We find that such a break-even scenario obtains only with the assumption that the infrastructure program increases GDP growth in all Eurasian cities by 40 basis points, in perpetuity, beyond any static gains already accounted for by changes in market access. Such an increment to growth could be motivated by external economies of scale in urban production (see, e.g., Glaeser and Mare 2001). Though such additional growth may be 4 plausible in certain cities nearby to projects creating large gains in market access, the existence of many individually uneconomic projects makes it less certain that such an increment to growth could be shared across all of Eurasia. Beyond the results specific to the Belt and Road, the analysis illustrates four heuristics from the spatial equilibrium model that may be applied in transportation planning. First, projects may be complements or substitutes. If built in isolation, only about one-third of projects provide market access gains. Considering the proposed new transport infrastructure as a system, however, the share of projects that provide gains increases to almost two-thirds. Conversely, a small number of projects become less valuable when the rest of the network is built, as other links make the projects redundant. Second, reforms that increase factor mobility across locations are likely to be complementary to investments in physical transportation infrastructure, though quantitatively they appear moderate. We simulate a counterfactual in which Eurasian Belt and Road countries become an economic union with free internal factor mobility, along the lines of the United States. In this case, aggregate value created by all projects built in complement is 8 percent larger than under a scenario in which factors are immobile. Third, the same transportation network improvement is worth more in a richer country. This is due to a level effect in which improvements in market access are worth more in larger (i.e., richer or more populous) markets. To the extent that project costs are determined by prices of internationally traded materials and capital equipment rather than local land and labor costs, this implies any given transportation project is less likely to be economically feasible when it is located is in a poorer country. This observation may partially rationalize limited investment in infrastructure in low-income countries as an equilibrium market outcome and explain why poor countries struggle to finance 5 infrastructure through taxation of incremental income, leading to recurrent challenges with national debt. Fourth, some projects, especially those affecting sea routes, generate external benefits far from their location. While the cities experiencing the greatest gains in market access are frequently those located close to the projects, the greatest gains in welfare accrue to China and western Europe. This suggests that infrastructure built in low- and middle- income countries along international trade corridors is a public good for which high income countries should be willing to pay. Our work is related to a substantial literature quantifying the economic impact of between-city transportation investment programs ex-post. 3 The market access approach has been used to study railroads in the 19th century United States (Donaldson and Hornbeck, 2016; Hornbeck and Rotemberg, 2020), and more recently highways in India (Alder, 2019) and Brazil (Morten and Olivera, 2018). Others have used alternative research designs to study highways in China (Faber, 2014) and India (Ghani, Goswami, and Kerr, 2016), railways in Africa (Jedwab and Moradi, 2016) and ports and highways in Africa (Storeygard, 2016). Asher and Novosad (2019) find that the Prime Minister’s Village Road Program (PMGSY) in India provided little measurable economic benefit for households. The market access framework provides an economic rationale for this finding: since the size (and purchasing power) of the rural markets is not large, there is 3 A distinct literature studies the impact of within-city transportation investments, for instance radial highways and rail surrounding cities in China (Baum-Snow, Brandt, Henderson, Turner, and Zhang, 2017), a bus rapid transit system in Bogota, Colombia (Tsivanidis, 2019) and the steam railroad in 19th century London (Redding, Sturm, and Heblich, 2020). 6 little value in lowering the cost of trade between them. We build on these studies by applying the market access approach to evaluate port, rail, and road investments ex-ante while accounting for asymmetric trade costs between locations, a feature of the international transportation network, where tariffs are generally levied on imports but not exports. Existing applications assume trade costs are symmetric. Others have used variants of the equilibrium model employed here to conduct ex-ante economic evaluations of improvements to the road network in Africa (Buys, Deichmann, and Wheeler 2010), the United States (Allen and Arkolakis 2019), and Western Europe (Fajgelbaum and Schaal 2020). The general question of how to value the so-called “wider economic benefits” of transportation projects beyond direct benefits for users has been addressed by Venables (2017) and Melecky, Bougna, and Xu (2018) among others. Alternative estimates of the economic impact of the Belt and Road Initiative are based on our original GIS database of transportation projects (De Soyres, et al., 2018, De Soyres, Mulabdic, and Ruta., 2019; Maliszewska and Van Der Mensbrugghe, 2019; Lall and Lebrand, 2019; World Bank, 2019). These studies evaluate the Belt and Road as a single bundle of projects built in complement, rather than evaluating individual projects. 2. A GIS DATABASE OF BELT AND ROAD TRANSPORTATION PROJECTS This paper provides an original and comprehensive database of all existing and planned transportation infrastructure projects proposed under the Belt and Road Initiative. Our database is unique in that it includes geographical information describing the exact location of each project (i.e., in GIS shapefiles) on the international 7 transportation network.4 This geographical information serves as the basis for our analysis of the projects’ welfare impact. Projects are included in our database if they lie physically along Belt and Road routes defined by two official Chinese sources (Office of the Leading Group for the Belt and Road Initiative, 2017; Government of China, 2017) and if they are mentioned in one of the following sources as being part of BRI: (i) a document issued by a government or its press agency, (ii) an article in a major academic journal or global news source, or (iii) a quote by a government official in a global or leading national news source. Sources reviewed include joint declarations by China and Belt and Road 4 Four other databases of Belt and Road projects exist. The Reconnecting Asia database by the Center for Strategic and International Studies (CSIS), the China Global Investment Tracker by the American Enterprise Institute (AEI), the MERICS Belt and Road Tracker, and the Hong Kong Trade Development Council (HKDTC) database. The CSIS database is a broad database covering 152 BRI-related transportation projects in Eastern Europe and Asia and overlaps substantially with ours, though does not include detailed GIS files that overlay these projects onto the transportation network. The database is notable for including some (but not complete) information on project costs. The AEI database emphasizes capital flows associated with certain projects, covering 50 investments related to road, rail or shipping infrastructure. The MERICS Belt and Road Tracker includes ample discussion of policy related to the BRI but does not offer a specific database of projects accessible to researchers. The database by HKDTC has a very broad scope that extends beyond transport links. It does list 106 logistics-related projects, most of which are not directly related to transport infrastructure. 8 countries, statements issued by government agencies (e.g., ministries, legislatures) of individual countries, global news organizations (e.g., Financial Times, Reuters), local news sources in which government officials are quoted, industry journals, and think tank publications. Projects need not be financed by Chinese banks to be included. Given this approach, our database uses a consistent set of criteria to include projects and is comprehensive within those criteria. Office of the Leading Group for the Belt and Road Initiative (2017, pg. 9) describes the overall geographic scope of the Belt and Road succinctly: “Based on the proposal from President Xi and the need to promote international cooperation and taking into consideration the routes of the ancient land and sea Silk Roads, China has determined five routes for the Belt and Road. The Silk Road Economic Belt has three routes: one from Northwest China and Northeast China to Europe and the Baltic Sea via Central Asia and the Russian Federation; one from Northwest China to the Persian Gulf and the Mediterranean Sea, passing through Central Asia and West Asia; and one from Southwest China through the Indochina Peninsula to the Indian Ocean. The 21st- Century Maritime Silk Road has two major routes: one starts from coastal ports of China, crosses the South China Sea, passes through the Malacca Strait, and reaches the Indian Ocean, extending to Europe; the other starts from coastal ports of China, crosses the South China Sea, and extends to the South Pacific.” Note a source of potential confusion is that the “Belt” refers to the overland routes, where many of the projects are road improvements, whereas the “Road” refers to the maritime routes, where projects are primarily ports. Further, note that though Africa may be discussed by some as being part of the Belt and Road initiative given substantial Chinese investment on the continent, it is not included explicitly in these corridors. Appendix A describes the 93 improvements to the transportation network included in our database and their status, as well as references to the sources used to include them. Of these improvements, 67 are on the Silk Road Economic Belt and 26 9 are on the Maritime Silk Road. These improvements are subsequently grouped into 75 projects when they are described jointly in our sources (for instance, the Sihanoukville Port project consists of three improvements: a port, a road, and a railway). In Table A1, Belt projects are grouped along six land corridors described by Office of the Leading Group for the Belt and Road Initiative (2017) and in Table A2, the Road projects are grouped along three sea passages described by the Government of China (2017). Table A1 includes a few examples of African rail projects that were attributed to the BRI by alternative sources, though Africa is not included in these corridors. In our analysis of welfare impacts, we will focus on the 68 projects from the Belt and Road that are in Eurasia. Figure 1 shows these projects. These 68 projects are overlaid on the existing network of all major rail, road and port infrastructure in Asia, Europe and the Middle East (i.e., Eurasia), beginning with existing road and rail connections documented in Natural Earth (Kelso and Patterson, 2018). In cases where Natural Earth does not include connections between cities, we include on the network additional road connections from OpenStreetMap. In China, rail data are further supplemented using Li’s high-speed railway shapefiles (Harvard Dataverse, 2016). Ports included on this network are those handling more than 5 million twenty-foot equivalent units (TEU) in 2015 (Nightingale, 2016). TEU is an inexact unit of cargo capacity used in the shipping industry, corresponding to the volume of a 20- foot-long intermodal container. Sea links between ports are derived by assuming ships can take the most direct feasible route between ports. To our best understanding, the resulting transportation network includes all major highways, railroads and ports in Eurasia. 10 Finally, we identify population and land with nodes on the network using the 964 cities nearest (i.e., within 30 kilometers) to any link with the transportation network, when all 68 projects are built in complement. Populations of these cities are as reported for 2015 by the UN Urbanization Prospects. In the average country, cities on the network comprise 24 percent of total population, though there is a range, with Singapore 97 percent, Turkey at 49 percent, and Cambodia at 11 percent, reflecting variation in domestic connectivity and urbanization in these countries, as well as the geographic scope of the Belt and Road itself. As shown in Figure 1, the Belt and Road passes through only portions of many countries. Our baseline specification focuses on welfare gains accruing only to these cities with direct connectivity to the international network. In discussion of the results however, we consider the implication of allocating additional population and land (e.g., from rural areas, or greater metropolitan areas around cities) to the nodes on the network. 3. THE MARKET ACCESS APPROACH TO VALUING THE BENEFITS OF IMPROVEMENTS TO AN INTERNATIONAL TRANSPORTATION NETWORK The market access approach to quantify the welfare benefit of a transportation investment is elaborated by Donaldson and Hornbeck (2016) for the case of a domestic transportation network. Here, we focus on how to interpret the model in the context of an international transportation network, and the specific modifications we make to their model in order to apply the framework to the Belt and Road. The central mechanism in the model through which transportation investment affects welfare is price adjustment--- when investment causes trade costs to decline between cities, consumers and firms in each city can buy goods more cheaply. 11 To set up the model, index locations on the transportation network by = 1, … , . The model is built on three assumptions about these locations. The first is that they share a Cobb-Douglas (constant returns) technology to produce goods with land, labor and capital. The share of local income that is paid to land is given by , the share paid to labor by , and the share paid to capital by 1 − − . The second assumption is a neoclassical gravity model of trade, with constant elasticity of substitution preferences for varieties produced by each location, in which the elasticity of trade flows to trade costs is given by the ratio 1/, where > 1 (Eaton and Kortum, 2002; Head and Meyer, 2014; Adao, Costinot, and Donaldson, 2017). The third is a spatial equilibrium in which factors are mobile across space and the marginal product of capital and utility (i.e., the real, local-price-adjusted, wage) are equalized across locations (Glaeser, 2008). In an international trade model, while the assumption of a common technology and trade elasticity are standard, the spatial equilibrium is a strong assumption. While there is substantial labor and capital mobility within subsets of Eurasian countries, facilitated for instance by the economic integration agreements underlying the Association of Southeast Asian Nations and the European Union, mobility within the entire continent is clearly constrained. In the analysis we value market access under two alternative scenarios of international integration (among a variety of other alternative specifications). In the baseline scenario, local income is held fixed in all cities to simulate the case in which there is no factor mobility, as in standard international trade analysis. In the alternative scenario, we use Theorem 1 of Allen and Arkolakis (2014) to calculate what income would be in each city if factors were able to freely reallocate in response to the change in trade costs induced by the Belt and Road projects, simulating a world in which the Belt and Road network of cities is a perfectly integrated economic union. The difference between the gains from Belt and Road projects under these two 12 scenarios describes the additional (complementary) benefit of implementing international integration agreements alongside Belt and Road projects. To calculate benefits from a change in trade costs induced by a project, the model requires calibration of three parameters and baseline income in each city. In our baseline specification, we use = 0.05, the land share of income in the (urban) non-agricultural sector (Valentinyi and Herrendorf, 2008); = 0.65, a lower bound estimate for the labor share in developing countries (Gollin, 2002); and = 5, a standard value of the trade elasticity (Head and Mayer, 2014). Under the three assumptions above, the price of land—the immobile factor of production—is a log-linear function of a location’s market access. In each location , 1 ln(r ) = + ( ) (ln( ) + ln( )) + (1) 1 + where r is the annual rental rate of land, is a constant and is an error term that is increasing in the city’s underlying absolute productivity advantage and decreasing in the abundance of land.5 The term is ‘firm market access’, and the term is ‘consumer market access.’ These terms are producer and consumer prices that summarize the value of all distant markets given the costs of trading with them. When these prices change in a city, the value accrues to owners of the immobile factor of production. 5 This corresponds to equation 6 in Donaldson and Hornbeck (2016). 13 We work with first-order approximations6 of these prices, which are functions only of market size and trade costs, 1 ≈ ∑ ( ) 1 ≈ ∑ ( ) where trade costs between market o and d > 1 are ad-valorem, taking the standard “iceberg” form. The mechanism through which transportation investments affect welfare is by changing in trade costs, which increase market access, and therefore land prices.7 We proceed to describe the measurement of trade costs, and then how they are expected to be affected by Belt and Road projects. Prior applications of this model to a domestic transportation network (e.g., Morten and Olivera 2018; Alder 2019) typically assume that = , which implies equality of and up to a constant. This assumption is not appropriate on an international transportation network, since tariffs are an important component of trade 6 The exact values of firm and consumer market access in the model are defined by equations 7 and 8 in Donaldson and Hornbeck (2016), ≡ ∑ − −1 and ≡ ∑ − −1 , a system of × 2 equations that can be solved numerically. We find that the (logs of) the exact values and (logs of) the first-order approximations are highly correlated. 7 In the background, the volume of trade will also increase as trade costs fall, increasing utilization of the transportation corridor. Appendix C reports the closed form equations for trade flows. 14 costs, and are generally levied on imports but not exports. Relaxing the symmetry assumption, we define ad-valorem trade costs when shipping from origin city to destination city as ≡ || 1 ∑ ̂ , () = () =1 1+ || 1 [∑ ̂ + () + () ] + () , () ≠ () { =1 where countries are indexed by ; ̂ is an estimate of the freight rate per unit of distance for each road, rail, or sea link segment reflecting the labor, fuel, maintenance and depreciation costs of freight transport; is distance; and the set of segments is chosen such that it minimizes the trade cost ̂ .8 When cities are in the same country and () = () the interpretation of ad- valorem trade costs is straightforward: transport costs are the sum of transport costs along each segment, divided by the value of the shipment. We set = $50,000 or the notional value of a shipment provided to survey respondents who quote border costs to the World Bank’s Doing Business Indicators. Border and tariff costs are added only when the origin and destination are in different countries, or when () ≠ (). For country , refers to the sum of quoted export border and documentary compliance costs and refers to the sum of quoted import border and documentary compliance costs, all from the Doing Business Indicators. The average ad- 8 The selection of the minimum cost route is performed using the shortest_path function in the NetworkX package, which makes use of Dijkstra’s (1959) algorithm. 15 valorem tariff in the importing country is observed in the World Development Indicators as the average applied tariff rate over all products, weighted by the value of products imported (this value is highly correlated with the simple average of tariffs across products). Border and tariff costs are applied only at the origin and destination, consistent with the fact that most countries on the network are signatories to the TIR (Transports Internationaux Routiers) convention, which allows swift and low- cost movement of transit trade trucks across border. Rail and port facilities typically also have expedited processes for transit goods. In addition to these ad-valorem trade costs, we allow for two additional costs along the network: mode-switching costs and (port) terminal handling charges. Mode- switching costs reflect the hassle of changing transport modes, so that the least-cost path does not switch modes an unreasonable number of times. Formally, when calculating || trade costs ̂ we replace the term ∑=1 ̂ with || ∑ 25 × [ℎ ] + ̂ =1 where [ℎ ] is an indicator for whether the trip on segment , in the direction from to , ends by connecting to a different mode (either rail to road, or road to rail). This effectively adds a $25 switching fee for each container. This fee is selected so that it is small compared to terminal handling charges, which are incurred when a shipment passes through a port. Herrera Dappe and Suárez-Alemán (2016) report that on our network these costs range between $65/TEU in Chennai, India to $268/TEU in Rotterdam, Netherlands. To also include terminal handing charges in trade costs, we || replace the term ∑=1 ̂ in the definition of trade costs ̂ with || ∑ 200 × [ ] + ̂ =1 16 where [ ] is an indicator for whether the trip from to along segment ends at a port, effectively adding a $200 terminal handling charge for each port the container passes through. The value of mode-switching and terminal handling charges are very small relative to the value of a shipment (i.e., 0.13–0.54 percent with a shipment value of $50,000/TEU). We set freight rates ̂ equal to those quoted along the network. Table 1 reports a range of quotes, by mode, measured in US dollars per twenty-foot-equivalent unit (TEU) per kilometer. Looking at the median upper and lower bound quotes by mode across references yields the well-known cost ranking in which sea is the cheapest mode (at $0.04 TEU/KM), rail is the next cheapest mode ($0.23-$0.47 TEU/KM) and road is the most expensive mode ($0.63-$0.85 TEU/KM). For regular road and rail segments (e.g., single carriageway), we set the freight rate equal to the median of the upper bound estimates in Table 1, a more expensive rate. For high capacity road and rail, we set the freight rate equal to the median of the lower bound estimates, a less expensive rate. This captures the idea that upgrades to higher capacity lowers costs. For sea, we use a single freight rate equal to the median estimate of the sea freight rate across all studies (the very high upper bound estimates for sea trade presented in Table 1 correspond to very short distances, due to the high fixed costs of sea travel, and so does not apply generally). A Belt and Road project is modeled as a change in the vector of trade costs from = { } to ′ = {′ }, leading to a change in market access. We can write this change as ̂ ≡ ′ ⁄ ̂ ≡ ′ ⁄ where the numerator in each expression indicates the value of market access evaluated when substituting ′ in place of . Table 2 shows how specific improvements to the network are recorded as changes in trade cost, using several examples from the Belt and 17 Road. These examples demonstrate the order of magnitude of the expected changes in freight rates that can be expected from the Belt and Road. For instance, the road upgrade of Highway A2 connecting Kazakhstan to Uzbekistan implies a change from regular to high capacity, and so with the assumptions above, suggests a decrease in the freight rate on that road segment from $0.85 to $0.63. Here, we have modeled expected increases in speed (due to increased capacity) as reductions in costs, though part of this cost reduction will also come from reductions in vehicle operating costs. The Belt and Road may also build new links between two cities. For instance the Tehran-Isfahan high speed rail will add a route with a freight rate equal $0.23, where one did not exist before. We close by describing how the model is used to put a dollar value on market access from Belt and Road projects. Equation (1) allows us to write 1 ln(′ ) − ln( ) = ( ̂ ) ) ln( (2) 1 + where ̂ ) + × ln ( ̂ ) ≡ ln( ln( ̂ ) In this derivation, we have assumed no congestion or agglomeration externalities— besides the change in market access, a project has no other effect on the city’s absolute productivity advantage (i.e., ′ − = 0).9 Let the quantity of land in a city be given by . Since the technology is Cobb-Douglas, we can define annual payments to land in 9 We subsequently relax the assumption of no economies of scale in Section 4. The present assumption also assumes that the project has a negligible effect on the supply of land. 18 the city as ≡ . Taking the exponent of equation (2) and combining it = with the definition of payments to land allows us to define 1 ′ ′ ≡ = ′ = ̂ ( ) 1+ . ′ The total additional land value generated is therefore given by 1 ∆ ≡ ′ − = ̂ 1+ − 1] [( ) (3) and the total value created across all cities is given by 1 ̂ )1+ − 1] . ∆ ≡ α ∑ [( (4) Equation (3) describes the (dollar) value of changes in market access in each individual city. Equation (4) summarizes the total value of changes in market access across the entire network. It is straightforward to use equation (4) for the benefit-cost analysis of any transportation project. The annuity or present value of the project’s benefits is given by ≡ ∆(1 + )/( − ) (5) where is the discount rate and is the GDP growth rate. The present value of construction and maintenance costs may be compared to the present value of project benefits. If benefits are larger than costs, the project is worthwhile. What remains to undertake the analysis is a measure of income in each city (at the numeraire price), or . Since most countries do not maintain national accounts disaggregated at the city level, especially within our large sample of countries, we evaluate Equation (4) under several alternatives. Our baseline measure is simply city population times national GDP per capita. Given the range of countries in our sample, from high-income Denmark to low-income Tajikistan, this assumption captures much 19 of the relevant variation in income across cities. However, within countries, this assumption may underestimate GDP in major metropolitan areas that are richer than the national average, or alternatively overestimate income in more remote cities. Therefore, in a second specification we replace our baseline estimate of income where possible with an estimate of city GDP from Oxford Economics, a research service that prepares forecasts. As expected, these estimates in some cases are lower than the national average, and in some cases are higher, with the average city GDP being 2.3 times larger using the alternative measure. Compared to variation across countries in national GDP per capita, this alternative specification does not appear to have a large effect on city income. In a third specification, we allocate all national income to cities on the network, in proportion to their relative populations (i.e., so a city with 20 percent of the population has 20 percent of GDP). This specification is comparable to what would be obtained by a country-level analysis that treats projects as a shock to international trade costs, while assuming a country’s entire land and population is affected similarly by reductions in trade costs (see, e.g., De Soyres, Mulabdic and Ruta 2019). 4. RESULTS 4.1 Trade on the Eurasian transportation network Several cross-country results will be familiar to readers in international trade, and provide assurance that the gravity model (the second of our model’s three key assumptions) is appropriate in our context when using the specification of trade costs described above. In Figure 2, Panel (a) shows China’s 2017 exports to all countries in the sample, and (b) shows imports, both as reported by COMTRADE since comprehensive data on trade and traffic flows between cities are not available. In the top chart of each panel, the horizontal axes of both figures show the GDP of the trading partner. Trade flows and GDP are in log terms and normalized by dividing by the corresponding value for Portugal. Both have a positive slope and show substantial fit: R2 = 0.64 for exports and R2 = 0.65 for imports. The bottom chart in each panel displays 20 on the horizontal axis our measure of trade costs. Though both charts show a negative slope, the fit in these lower panels is not as high as in the upper panels (R2 = 0.03 for exports and R2 = 0.11 for imports), though it is larger for imports, where tariffs contribute disproportionately to overall trade costs. These results suggest we can apply the market access approach in our context, since though it has the advantage of not requiring data on trade or traffic flows, it does require that trade conforms to the gravity relationship. 4.2 Baseline market access To describe the economy before the Belt and Road projects, we report baseline levels of (log) market access in each city, ln( ) = ln( ) + ln( ), where firm and consumer market access are calculated separately using asymmetric trade costs. Table 3 reports the largest city in each decile of baseline market access, for each of the World Bank’s groupings of national income, as well as the share of cities in each decile that are located near a port, border or the national capital. Some of the results may be counterintuitive. First, while market access is correlated with national income, the correlation is not perfect. In the lowest three deciles of market access there are no cities in high income countries. In the top four deciles there are no cities with low income. Similarly, we see that some of the largest cities in India (Delhi, Mumbai and Chennai) all have relatively low market access relative to some of the largest cities in China (Shanghai and Guangzhou) which have higher per capita income. National income is not everything however; relatively high- income cities in smaller countries, such as Stockholm, Sweden, and Lisbon, Portugal, have lower market access than large cities in China, where the larger population of neighboring cities compensates for their relatively lower per capita income. Second, though connectivity to ports appears related to market access, proximity to a border need not be. Twelve percent of cities in the top decile are port cities, compared to 0-6 percent in all other deciles. This result is likely due to the large 21 difference between sea freight rates ($0.04/TEU/KM) versus low capacity rail ($0.47) and road ($0.85). Looking at border cities, a substantial share of the population in the lowest decile of market access, 16 percent, is concentrated in border cities, but the same share of the top decile is also concentrated in border cities. Connectivity at the border does not necessarily increase market access, unless it also offers a link to substantially lower freight rates, which is only the case for a sea border. Being a capital does not seem systematically associated with market access. 4.3 The value of changes in market access from individual Belt and Road projects We now value the expected changes in market access from building each of the 68 Belt and Road projects in Eurasia, using the correspondence between project type and change in trade costs in Table 3. We evaluate each project under two scenarios: (i) “in isolation”, in which no Belt and Road projects have been built, and (ii) “in complement”, in which all Belt and Road projects have been built except . The comparison of these scenarios is informative about the extent to there is value from coordinated planning of projects. In this initial analysis, we hold fixed at its baseline value, considering a world without complementary economic integration reforms, and apply the baseline specification of parameter values and income described in Section 3. Figure 2 shows this result of the analysis visually, mapping the (log) changes in market access in each city in Eurasia for the scenario in which each project is built in complement.10 Notably, some of the largest gains in market access are outside China, in 10 A question is whether the ranking of cities by changes in market access are stable to alternative specifications of the model. If the ranking is stable, this suggests that 22 lower income countries, for instance Kyrgyzstan and the Lao People’s Democratic Republic. Market access gains in Europe appear small, which is not surprising given the distance of Europe from most projects. Overall, this map suggests that the Belt and Road projects do have the potential to improve market access for some cities, especially in lower income countries. Equation (3) converts changes in market access at the city level into units of welfare, yielding the value of market access in terms of income to land (∆ ). Figure 3 show these values on a map, a very different picture from Figure 2. When represented in terms of incremental land value, the largest gains now appear in higher income cities of Europe. Large cities in China also have larger gains. This result stems from the fact that these cities have larger base levels of income, and so the same increase in market access generates much more benefit in rich markets than in markets that are poor. The comparison of these two maps highlights a useful heuristic for the cost benefit analysis of transportation projects. Since the value of gains in market access are a multiple of local income, the total value of project benefits will be smaller in poorer countries. Table 4 reports the distribution of annual benefits ∆ generated by each project. For each project, the value of additional market access is disaggregated using Equation (3), to show the share of benefits accruing to the country in which the project is built (except the gravity model makes generalizable predictions about the location of benefits associated with a given project. To assess this question, Appendix Table B1 reports the Spearman (rank) correlation of changes in market access across cities for a variety of alternative specifications. Overall, the results show that the model’s rankings of cities are remarkably stable, with rank correlations in the range of 0.7–1.0 across specifications. 23 China), and the share accruing to China itself. This disaggregation allows one to evaluate the extent to which the BRI may be motivated by the national interest of China, or magnanimity towards other nations. An equal split of project benefits between China and other countries is consistent with the idea that there is potential for “mutual benefit” from the projects, as claimed in Chinese government sources. This analysis delivers three key results. First, while some projects do appear to produce substantial benefit, more than half of all projects do not generate any benefit. The maximum annual benefit of a project ( ) when built insolation is just $750 million, or $1.45 billion, in present value terms with = 0.06 and a perpetual GDP growth rate of = 0.055 . This value drops off quickly however, with the 75th percentile project generating just $8.3 million per annum when built in isolation, or $16 million in present value, and the 50th percentile project yielding benefits equal to zero. This result suggests that many Belt and Road projects should not be expected to generate incremental income. We note that this result obtains because many projects do not create new least-cost paths between any city pair on the transportation network, and therefore fail to change market access regardless of the model’s calibrated parameters , , , and . Though in the following subsection we explore robustness of our estimates to alternative specifications of these parameters, our main conclusion that many projects do not generate increases in market access is robust to these alternative specifications. Moreover, benefits of these projects will fail to exceed project costs for any estimate of costs. Table 5 provides some examples of projects that do and do not produce benefits. Projects in the table are grouped by terciles of estimated project value ( ). Several projects in the top tercile are those connecting major population areas. For example, the Tehran-Mashhad rail electrification connects two of the Islamic Republic of Iran’s largest urban agglomerations. The Kunming-Calcutta High Speed Rail is also expected to produce substantial benefits, mainly by linking poorly connected large cities in 24 Bangladesh. The ML-1 railway in Pakistan also connects the country’s major cities. This observation is consistent with the finding of Allen and Arkolakis (2019), also using a gravity model, that the most valuable highway improvements in the United States are along the heavily trafficked corridors of the north-east near large cities including New York. Turning to the middle tercile of our valuations, which includes projects with Δ = 0, we see that governments have indeed scaled back projects. Specifically, the East Coast Rail Link (Malaysia) was suspended and then renegotiated at 1/3 lower cost. The Kyaupyu Port (Myanmar) was recently scaled down from 10 berths to 2 berths. These results provide some external validation of the model’s predictions. Our second result is that there appears to be substantial complementarity between projects. When projects are built in isolation, just 29 have value above zero, whereas when the projects are built in complement, 43 have positive value. This suggests that 14 projects only become valuable when the whole network is built. Perhaps surprisingly, some projects are more valuable when built in isolation. We see . > 1. The project with the highest ratio is this in cases where the ratio . / 192 times more valuable when built in isolation, suggesting it is possible for redundant projects to erase the benefits of a project. When ranked by this ratio, the 90th percentile project is 4.2 times more valuable in isolation. Certain projects therefore may cannibalize each other’s traffic (along the least-cost path) when built concurrently. Examples of such projects include the Bangkok-Pedang Besar-Kuala Lumpur rail (Thailand, Malaysia) and the Burma Railway (Myanmar, Thailand). Taken together, these findings indicate there are returns to targeted inquiry into redundancy between projects. Our third result is that gains from some projects are shared internationally with countries quite far from their location, demonstrating that infrastructure investment can 25 be an international public good. Considering projects when built in complement, the 90th percentile of projects with > 0 has 43 percent of the value accruing to a country (besides China) that the project is not located in. The 75th percentile has 21 percent of the value accruing to such countries. These international gains are slightly more common when projects are built in isolation. When projects are built in isolation, 38 percent of the gains accrue to China for the median project, even though projects are located outside of China. Overall, our results are consistent with the Chinese government’s stated understanding of the Belt and Road as generating “mutual benefit” for China and other countries (Office of the Leading Group […], 2017, pg. 4). Perhaps surprisingly, substantial gains accrue to European countries that do not lie along Belt and Road corridors, but nonetheless benefit from reduced trade costs along the international transportation network. However, the results also demonstrate that many projects cannot be justified on a purely economic basis, consistent with China (and project sponsoring countries) have non-economic motivations in promoting the projects. International coordination of investment can improve the economic returns to the program of investment, but these additional benefits will come from cancelling at least one third of the projects. 4.4 Sensitivity of results to alternative specifications Though some projects fail to produce economic benefits in terms of market access, it could be that the benefits of some projects are so large that they could compensate for the construction cost of the projects that do not increase market access. In this scenario, Belt and Road countries in principle could redistribute income amongst themselves to pay for the bad projects. We explore the feasibility of this scenario in this subsection by evaluating the benefits of projects when built in complement under a diverse set of alternative specifications, which represent the different ways in which the analyst could choose to be optimistic about the project. 26 Total benefits are compared to an independent estimate of cost by De Soyres, Mulabdic and Ruta (2019), who estimate the cost of transportation projects as a function of mode and length, using our GIS database and country-specific cost information collected from World Bank country offices, which finance transportation infrastructure in the region and so has references for such projects. For all countries in Eurasia, these authors estimate the cost of all projects built in complement to be approximately $321 billion.11 Table 6 reports the value of market access from each of the six Eurasian corridors when each corridor is built separately, and the value when all six corridors are built in complement. The columns of the table report these values under a variety of specifications, beginning with the baseline specification described in Section 3. The three panels of Table 6 show how the present value of benefits is built up using Equation (5). They are shown separately to illustrate the sensitivity of the estimates to the discount rate and growth rate, a standard issue in financial analysis. Panel A reports the annual value of market access (ΔV) implied by Equation (4). Panel B reports the present value of these benefits assuming a discount rate = 0.06 and = 0, indicating zero GDP growth. This discount rate is generously low (leading to an optimistic estimate of project benefits) for two reasons. First it is only in the lower range of the central bank policy rate in Belt and Road countries (e.g., Pakistan, Laos). Many other countries face a higher opportunity cost of funds. Second, since loans to finance infrastructure have longer tenure than short government loans, the discount rate applied to evaluating infrastructure investments is likely to be higher than even the central bank 11 Actual project costs are not available because, as described in the Introduction, governments in general have not been transparent about the financing of Belt and Road projects. 27 policy rate in any country. The relatively low rate selected here may be understood therefore to capture some preference for the welfare of future generations, in addition to the cost of capital. Panel C provides in our assessment a reasonable, if slightly optimistic basis for evaluating benefits, assuming = 0.06 and a perpetual GDP growth rate of = 0.055, the growth rate for developing Europe and Asia in 2019 (IMF, 2020). Comparing results in panels A, B and C illustrates the substantial degrees of freedom available in an analysis of the present value of a project’s benefits. Focusing on the results in panel C, the present value of all projects when built in complement in our baseline specification is just $87.9 billion, far less than the independently estimated costs of $321 billion. Looking at an individual corridor, the value of the China-Pakistan Economic corridor is just $3.7 billion, far less than project costs in Pakistan alone of $49 billion according to De Soyres, Mulabdic and Ruta (2019). We now review the implications of alternative specifications. First, we investigate alternative values of the model’s three fundamental parameters. Equation (4) shows that scaling the parameter will increase one-to-one the expected benefit of the project. Valentinyi and Herrendorf (2008) show that across non- agricultural (urban) sectors this share varies little, from a minimum of = 0.03 in construction and equipment investment to a maximum of = 0.06 in services. Applying the value for services would increase benefits relative to our baseline specification by 0.06/0.05 = 1.2 or a 20 percent increase in benefits, to $105.4 billion, still far less than $321 billion. While a higher share of income to the fixed factor could feasibly obtain in some extremely dense urban centers, it would be optimistic to assume it is everywhere in all cities triple the estimate for the service sector. Setting the labor share = 0 corresponds to the case where consumer market access does not matter, only the value of the market to firms. As expected, benefits are reduced substantially. Increasing the labor share to = 0.8 corresponds to an upper bound estimate of the labor share in developing countries (Gollin, 2002), which leads to 28 benefits in Panel C of $96 billion when all projects built in complement, only slightly higher than the baseline. One hypothesis is that our single sector model ignores the fact that transportation investments may be especially beneficial to specific sectors. Using data on trade flows in North America, Caliendo and Parro (2015) find an aggregate elasticity of trade to trade costs = 4.55, close our baseline value, though they also find that can vary by sector. The value = 2 is a theoretical minimum (if the variance of the Type-II extreme value distribution underlying city productivity in the model is to be finite; see Donaldson and Hornbeck, 2016). Caliendo and Parro (2015) estimate elasticities in agriculture ( = 8.11) and mining ( = 15.72) implying these sectors offer a higher sensitivity of trade to trade cost than in aggregate. Alternative columns of Table 6 consider project benefits as if all trade was in these sectors. While project values are lower with = 2, they are almost double the result of the baseline specification when we set = 15.72. Nonetheless, the value of all projects in Panel C even under this specification is still just $170 billion, approximately half of costs. Allowing a very high sensitivity of trade to trade costs therefore may increase gains from individual projects but does not lead the present value of benefits from all projects to exceed their costs. We turn to alternative specifications of income. First, we use alternative estimates of city GDP from the research service Oxford economics, as described in Section 3. These alternative values of city GDP lead to an estimate in Panel C of the present value of project benefits equal to $140.6 billion, 60 percent more than the baseline specification, but still less than half of project costs. Second, we use alternative estimates of city GDP that assume all of countries’ income is allocated to the nodes on the network. Here the present value of project benefits in Panel C is $272.2 billion, which is 309 percent of the baseline estimate, but still less than estimated projects costs. Even under the assumption therefore that within country trade costs are zero off of the international transportation network, and that the value of all land in the country will increase identically in response to 29 improvements to that network, the present value of the Belt and Road projects built in complement does not exceed their costs. We now consider would happen if the Belt and Road were complemented by international integration reforms that freed labor and capital to reallocate optimally across the transportation network. So far, in our calculation of ∆ we have assumed that after trade costs fall, the income of each city remains constant (before adjusting for firm and consumer price changes). To relax this assumption, we apply Theorem 1 of Allen and Arkolakis (2014), which states that the vector of city income in this model’s equilibrium is a unique fixed point, determined by trade costs. Using an iterative algorithm described in Appendix C we calculate the market size of each city under post-BRI trade costs if factors can optimally reallocate, holding each city’s total factor productivity fixed at baseline levels. Allowing for factor reallocation in this way leads to an improvement over our baseline specification, with the present value of benefits in Panel C equal to $95 billion, or 9 more more than the baseline specification. International integration agreements can therefore be complementary to transportation infrastructure, but in this case are not pivotal in determining whether benefits are greater than costs. This discussion has demonstrated how allowing alternative specifications of the main parameters , , , and as well as perfect factor mobility does not change the conclusion all Belt and Road projects, when built in complement, do not create gains in market access that exceed their costs. A final argument we consider is that the program can break even, but only if, in addition to lowering production costs, reductions in trade costs allow cities to capture scale economies in urban production, or so-called `agglomeration’ economies (see, e.g., Duranton and Puga, 2004). These gains must be in addition to reductions in traffic congestion costs already accounted for by the fact that road and rail capacity expansions to deliver lower trade costs. In the baseline version of the model with no factor mobility, such economies would be hard to justify, since there only prices change, not the scale of 30 production in each city. However, such benefits could obtain in the specification with increased factor mobility, where the scale of production in cities in certain cities may increase. One potential mechanism for increased economies of scale through this channel could be that migration of workers to larger cities allows them to accumulate human capital more quickly (Glaeser and Mare, 2001), which would accelerate the growth rate of the economy. Setting the present value of benefits in Equation (5) equal to the estimated costs of $321 billion and rearranging allows one to back out how much additional growth through this mechanism would be required to break even. Using the same discount rate = 0.06 and the value of annual benefits ∆ = $452 million from the specification of the model in Table 6 that includes factor reallocation, this calculation yields a required growth rate of g = 0.059 for the program of all 68 projects built in complement to break even, or 40 basis points in additional annual GDP growth---in perpetuity---for all cities in Eurasia as a result of the program. This calculation highlights how in benefit-cost analysis the terminal growth rate of benefits is an extremely important parameter.12 For the complete program of Belt and Road projects to be justified on purely economic grounds, one must accept that it accelerates economic growth throughout Eurasia substantially, in addition to the static gains highlighted by the spatial equilibrium model in Section 3. Whether such gains are plausible is an active area of research in urban economics, though estimating the magnitude of agglomeration economies is notoriously difficult. Some recent descriptive work calls into question the potential for a substantial economic growth multiplier. Using both panel 12 The key robustness table in almost any financial valuation analysis explores sensitivity to the terminal growth rate and the discount rate. 31 and instrumental variable econometric methods, Frick and Rodríguez-Pose (2016) find that while in high-income countries average city size and GDP per capita growth are positively related, in developing countries this relationship is insignificant or negative. This finding suggests that while the Glaeser and Mare (2001) mechanism for dynamic agglomeration gains exists in the United States, it may escape developing countries where most Belt and Road projects are located. One explanation for this could be that higher congestion within cities not directly addressed by Belt and Road projects, which mainly connect cities, makes it more difficult for workers to learn from one another, eliminating the effect of increased density on human capital accumulation. This conjecture is plausible, having sat in traffic in Beijing or Lahore. 5. CONCLUDING REMARKS This paper finds find that the present value of increased market access from all planned, on-going and completed Belt and Road transportation projects in Eurasia is very likely to be less than these projects’ costs. This conclusion stems from the fact that approximately one-third of projects do not create new least cost paths on the network, even when all projects are built in complement. Nonetheless, subsets of the investments could be economically viable. If benefits of the entire Belt and Road program are to be greater than costs, this will be due to either a much narrower set of projects being selected than the set proposed by officials, or the presence of external economies of scale leading to a substantial increase in the growth rate for all Belt and Road economies. Whether such dynamic gains from transportation investments are feasible, especially in low- and middle- income economies, is an important question that warrants future research. Beyond the Belt and Road, the analysis has demonstrated several general heuristics that policy-makers can use to evaluate transportation projects: (i) projects may be substitutes or complements in reducing costs on the network, (ii) reforms that allow the reallocation of factors in response to the project can increase benefits, though this effect appears moderate; (iii) benefits will be higher in richer countries all else equal, 32 since project benefits are a multiple of national income, suggesting poorer countries in general may struggle to fund infrastructure; and (iv) transportation infrastructure can be an international public good that creates benefits far from its location. Taken together, our findings do suggest the Belt and Road has the potential to create substantial mutual benefit for China and countries along the Eurasian transportation network. 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Optimisation of Central Asian and Eurasian Trans-Continental Land Transport Corridor. Emerson and Vinokurov not include distances, which were estimated by the authors of this paper. Rodemann, Hendrik and Simon Templar (2014). The enablers and inhibitors of intermodal rail freight between Asia and Europe. Rodemann and Templar also include sea costs for each connection, but the sea path taken is not clear, so these costs are not considered. Seo, Young Joon et al. (2017). Multimodal Transportation: The Case of Laptop from Chongqing in China to Rotterdam in Europe. Seo et al. cite a shipping cost from Chongqing to Shanghai via inland waterway. These are not considered. Sladkowski, Aleksander and Maria Ciesla (2015). Influence of a Potential Railway Line Connecting the Caspian Sea with the Black Sea on the Development of Eurasian Trade. Some costs are converted from other currencies. Costs for containers less than 20 tons are not included. In cases where a range of values was cited for a single journey (e.g. "3,465 – 3,635 USD"), the mean was taken. 39 Sun, Feng et al. (2017) Improvement of Rail-sea Multimodal Transport with Dry Port Construction: Case Study of Ningbo-Zhoushan Port. Some per-kilometer costs derived implicitly using a system of equations. 40 Table 2: Representation of BRI projects by change in freight rates FREIGHT RATE (USD/TEU/KM) Improvement Type Description Example BRI project Representation by change in fright PRE-BRI POST-BRI (see Appendix A) rate parameters (see Table 2) New road A new undivided highway is built. • M3/M4 Multan Highway (Pakistan) Does not Exist (DNE) → Road - 0.85 • Highway AH4 (Russian Federation, Mongolia, China) New divided road A new divided highway (dual carriageway or 4- • Urumqi-Khorgos road (China) DNE → High capacity road - 0.63 lane road with median) or expressway is built. • Khorgos-Almaty road (Kazakhstan) Road upgrade An undivided road is upgraded to an expressway • Highway A2: Almaty-Tashkent Road → High capacity road 0.85 0.63 or divided highway. (Kazakhstan, Uzbekistan) • Highway A3 (Kazakhstan) Road reconstruction Road was existing, but unsuitable for • Jalalabad–Töö Ashuu (Kyrgyz DNE → Road - 0.85 commercial traffic. Road is upgraded to a Republic) modern undivided highway. • Kashgar–Khunerjab (China) New rail A new unelectrified one-track rail connection is • Khorgos-Aktau Railway (Kazakhstan) DNE → Rail - 0.47 built. New high capacity A new electrified and/or dual-track trail • Tehran-Isfahan high speed rail (Iran, DNE → High capacity rail - 0.23 rail connection is built. May be for high speed Islamic Rep.) passenger traffic (“high-speed rail”), but not • Kunming-Calcutta high-speed rail necessarily. (China, Myanmar, Bangladesh, India) Rail upgrade One-track rail line is expanded to two tracks or • Karachi-Peshawar capacity expansion Rail → High capacity rail 0.47 0.23 electrified. (Pakistan) • Samarkand-Mashhad rail (Uzbekistan, Turkmenistan, Iran, Islamic Rep.) Rail reconstruction Rail connected was existing, but antiquated or • Erdent-Salkhit (Mongolia) DNE → Rail - 0.47 unsuitable for modern locomotives. Rail is • Chifeng–Jinzhou (China) upgraded to a modern single-track connection. 41 New seaport A seaport is significantly expanded (capacity at • Hambantota Port (Sri Lanka) New sea links added - 0.04 least doubled) or newly built • Gwadar Port (Pakistan) New sea link A new shipping service is established between • Ankalia port (Georgia) New sea links added - 0.04 two existing ports. • Turkmenbashi–Baku (Turkmenistan, Azerbaijan) 42 Table 3: City summary statistics by decile of baseline market access (MA) Largest city by income group Population (2015) GDP (2015) UN Per Forecast capita % pop Initial Median CAGR, CAGR, median % in MA Median Upper across 2005– 2015– across capital % port border decile ln(MA) Lower Middle Middle High Total cities 2015 2030 Total cities cities cities cities Mn. Thou. Bn. People people USD USD 1st 29.63 Dhaka Tehran none 136 547 2.7% 2.4% 364 1,651 10% 3% 16% 2nd 29.73 Delhi Baku none 114 580 2.7% 2.4% 237 1,758 3% 0% 3% 3rd 29.76 Mumbai Bangkok none 146 584 2.6% 2.3% 362 1,758 0% 1% 1% Kuala 4th 29.81 Chennai Athens 93 565 1.8% 1.5% 951 11,325 12% 4% 2% Lumpur 5th 29.85 Kharkiv Istanbul Stockholm 93 561 1.8% 1.2% 1,044 6,497 8% 1% 4% 6th 29.86 Kiev Chongqing Lisbon 112 619 2.7% 2.0% 936 6,497 6% 4% 1% 7th 29.87 none Beijing Warsaw 110 576 2.7% 1.9% 828 6,497 3% 6% 1% 8th 29.88 none Shenyang Budapest 101 732 3.0% 2.3% 723 6,497 4% 2% 3% 9th 29.88 none Guangzhou Madrid 162 892 2.9% 2.0% 1,760 6,497 6% 6% 1% 10th 29.90 none Shanghai Paris 149 638 1.4% 1.1% 4,818 41,642 9% 12% 16% Notes: Each decile has 96 cities, except the 1st and 10th, which have 97 cities each. GDP figures use constant 2010 US dollars. 43 Table 4: The value of market access from individual Belt and Road projects Project-level summary statistics Number Percentile of Units Min 10 25 50 75 90 Max projects A) Projects built in isolation Annual Project Value (ΔV) $ millions 0.0 0.0 0.0 0.0 8.3 32.9 750.0 68 Share of ΔV in proj. country (besides percent 0.0 0.0 0.0 5.0 50.0 58.3 66.0 29 China), if ΔV>0 Share of ΔV in China, if ΔV>0 percent 0.0 9.7 13.0 38.0 38.0 42.6 55.0 29 B) Projects built in complement Annual Project Value (ΔV) $ millions 0.0 0.0 0.0 4.0 15.3 42.2 744.0 68 Share of ΔV in proj. country (besides percent 0.0 0.0 0.0 0.5 21.3 43.2 57.0 43 China), if ΔV>0 Share of ΔV in China, if ΔV>0 percent 0.0 0.0 0.0 1.0 9.3 21.3 47.0 43 Ratio of ΔV iso./ ΔV comp. 0.0 0.0 0.0 0.0 0.9 4.2 191.6 68 Note: Table shows the distributions of individual BRI project values when built under two scenarios: (A) in isolation, wherein network on which the project is built does not include any other Belt and Road projects, and (B) in complement, wherein all other projects are assumed to be built before the project is built. Additional rows also show the share of project value either outside the project country or in China. 44 Table 5: Status of select projects and estimated value of market access Est. ΔV in Project isolation Status of project Discussion Thai Canal Top tercile Proposed, but no The canal would bypass Singapore and shorten shipping by 1,000 km, Thailand studies conducted. costing 20-30 Bn USD. Canal area currently faces religious insurgency. Project declared Thailand only sees 1% of ΔV, and ΔV is significantly lower in complement not a priority by with other projects. ΔV is much lower if the cost of sea travel is lowered Thai government. from 0.05 to 0.01 USD per km. Kunming-Calcutta Top tercile Chinese officials The market access gains from this project would come from connecting High Speed Rail, have expressed cities in Bangladesh that currently have poor infrastructure. This assumes, of Bangladesh, India, support, but course, that the rail is also used for freight. Since most of the 2,000- Myanmar concrete planning kilometer railway will bring no benefit, concrete steps are not being taken. has not begun. Projects specific to Bangladesh are being promoted instead. Tehran-Mashhad rail Top tercile Studies finalized in This electrification project will enhance the rail link between two of the electrification, 2018. Construction Islamic Republic of Iran’s largest urban agglomerations. The high market Islamic Republic of set to begin in access increase is also due in part to the Islamic Republic of Iran’s relatively Iran 2019. high GDP per capita. Expansion of railway Top tercile Phase 1 of ML-1 is Pakistan’s most important rail line, linking the key cities of Line ML-1, construction Karachi, Hyderabad, Lahore and Peshawar. Upgrades to this line will Pakistan initiated in 2018. greatly increase market access for Pakistan’s large cities, which are near but Expected have poor transport links. completion 2022. Kuantan Port, Top tercile Completed in The expansion of Kuantan Port creates new shipping links between Malaysia 2018. Malaysia and other Southeast Asian countries. Reduced transport costs increase market access in Kuantan and Kuala Lumpur, whose relatively high GDP per capita translate to a large increase in land rents. Bangkok-Vientiane Middle Thailand portion of This railway will connect large and higher-income Bangkok with areas of rail, Thailand and tercile railway is being northeast Thailand and Laos that were poorly connected prior to BRI, Laos built and will open increasing market access for cities in those areas. in 2021. East Coast Rail Link, Middle Work suspended The railway would not link any major population centers, while access to Malaysia tercile but resumed after shipping lanes would see only very slight improvement. Budget cut from negotiation of 1/3 RM 66.7 Bn to RM 44 Bn. Cancellation would have incurred a cost reduction. termination fee of RM21.8 Bn ($5.3 Bn). 45 Kyaukpyu Port, Middle Port project scaled The port did not create any new routes that are sufficiently low in cost to Myanmar tercile down from 10 generate any increases in land rents. berths to 2 berths. Table References The Straits Times (2018). Proposed Kra Canal not priority project for Thai govt. Singh Maini, Trividesh (2018). China Reaches Out to West Bengal and Eastern India. Stratfor. Iran Ministry of Roads and Urban Development (2018). Tehran-Mashhad Electrified Railway Studies Finalized. CPEC Secretariat (2018). Expansion and reconstruction of existing Line ML-1. CPEC.gov.pk. CSIS Reconnecting Asia (2018). Kuantan Port: New Deep Water Terminal Phase I. Hunt, Luke (2017). Construction of the Thailand-China Railway Finally Gets Underway. The Diplomat. Financial Times (2019). Malaysia renegotiated China-backed rail project to avoid $5bn fee. Kapoor, Kanupriya and Aye Min Thant (2018). Exclusive: Myanmar scales back Chinese-backed port project due to debt fears – official. Reuters. 46 Table 6: The value of market access from Belt and Road projects when built in complement Model Specification With Labor Labor =2, =8.1, Oxford factor Base- share share lower agri- =15.7, Econ. National realloc- US$ Millions line =0 =0.8 bound culture mining GDP Population ation Min. Max. Panel A) Annual benefits --- ΔV China-Indochina Peninsula Economic Corridor 273 167 297 125 384 547 442 832 292 125 832 New Eurasian Land Bridge 34 21 37 16 47 65 56 105 37 16 105 China-Central Asia-West Asia Economic Corridor 26 15 28 12 35 47 38 78 28 12 78 Bangladesh-China-India-Myanmar Economic 28 16 30 14 36 44 46 89 31 14 89 China-Mongolia-Russia Economic Corridor Corridor 24 14 26 11 33 47 42 65 26 11 65 China-Pakistan Economic Corridor 18 10 19 9 23 28 22 59 20 9 59 All Projects Built in Complement 417 251 455 194 579 806 667 1,290 452 194 1,290 Panel B) Present value of benefits with 6% discount rate, 0% growth --- ΔV/0.06 China-Indochina Peninsula Economic Corridor 4,548 2,776 4,957 2,088 6,401 9,121 7,371 13,867 4,874 2,088 832 New Eurasian Land Bridge 568 347 619 268 781 1,075 930 1,750 616 268 105 China-Central Asia-West Asia Economic Corridor 428 250 469 206 579 790 634 1,300 466 206 78 Bangladesh-China-India-Myanmar Economic 460 260 506 225 607 741 762 1,483 510 225 89 China-Mongolia-Russia Economic Corridor Corridor 392 241 427 179 553 789 693 1,083 428 179 65 China-Pakistan Economic Corridor 293 161 323 145 385 470 368 983 328 145 59 All Projects Built in Complement 6,951 4,180 7,591 3,240 9,654 13,433 11,114 21,500 7,531 3,240 1,290 Panel C) Present value of benefits with 6% discount rate, 5.5% growth --- (ΔV*1.055)/(0.06-0.055) China-Indochina Peninsula Economic Corridor 57,582 35,150 62,761 26,435 81,038 115,474 93,312 175,552 61,708 26,435 832 New Eurasian Land Bridge 7,195 4,397 7,841 3,399 9,889 13,610 11,773 22,155 7,794 3,399 105 China-Central Asia-West Asia Economic Corridor 5,414 3,164 5,934 2,614 7,332 9,996 8,029 16,458 5,897 2,614 78 Bangladesh-China-India-Myanmar Economic 5,821 3,292 6,404 2,849 7,680 9,378 9,649 18,779 6,455 2,849 89 China-Mongolia-Russia Economic Corridor Corridor 4,962 3,054 5,402 2,270 6,998 9,990 8,775 13,715 5,416 2,270 65 China-Pakistan Economic Corridor 3,706 2,037 4,091 1,835 4,869 5,950 4,657 12,449 4,159 1,835 59 All Projects Built in Complement 87,999 52,924 96,096 41,024 122,218 170,056 140,699 272,190 95,345 41,024 1,290 47 FIGURES Figure 1: Map of BRI improvements in Eurasia 48 Figure 2: International trade flows in Eurasia fit the gravity relationship 49 Figure 2: Changes in market access when all BRI projects are built in complement 50 Figure 3: Value created for owners of land when all BRI projects are built in complement 51 APPENDIX A: DATABASE OF PLANNED BRI ROAD, RAIL AND PORT INVESTMENTS (NOT FOR PUBLICATION) TABLE A1: SILK ROAD ECONOMIC BELT (“BELT”) TYPE STAT CORRIDO NO IMPROVEMENT COUNTRI (SEE STATUS US R . PROJECT SECTION ES TABLE 3) REF. STATUS DETAILS DATE REF. CHINA- Ulan-Ude– Russian Already in use. European, MONGOLIA Ulaanbaatar– Federation, Rail upgrade (1) Central Rail Mongolian and Chinese -RUSSIA 1. Erenhot Mongolia Operational 30-Sep-18 (2) Corridor firms are using the ECONOMIC Erenhot–Beijing– China Rail upgrade (1) corridor. CORRIDO Tianjin R (CMREC) Russian Kuragino – Kyzyl New rail (1) Construction started on Federation section to Ovoot coal Russian Kyzyl–Arts Suur– mine, to finish in 2019. Federation, New rail (1) Northern Rail Ovoot Section beyond Ovoot is (2) 2. Mongolia Planning 10-Apr-18 Corridor only planned. Final (3) Ovoot–Erdenet Mongolia New rail (1) feasibility study approved Rail in April 2018. Delays due Erdenet–Salkhit Mongolia reconstructio (1) to funding shortfalls. n Proposed under Mong. national rail policy and Western Rail Mongolia, 25-Nov- (1) 3. Arts Suur–Urumqi New rail (1) Proposed joint China-Mong.-Rus. Corridor China 2018 (4) declaration. No concrete steps taken. Eastern Rail Choibalsan–Bichigt Mongolia New rail (1) Proposed and still being 4. Proposed 23-Jan-2018 (5) Corridor Bichigt–Chifeng China New rail (1) discussed. China, Russian 52 Rail Federation and Mongolia Chifeng–Jinzhou China reconstructio (1) ready to operationalize the n agreement. China's side of the railway bridge has been completed China, already. Massive floods Nizhneleninsko Leninskoye– Under 13-Nov- (6) 5. Russian New rail (6) delayed work on Russian ye Bridge Tongjiang Construction 2018 (7) Federation side. Russian Federation to complete its section in 2018. China, Pogranichny Border cost Russian (1) crossing reduction Federation Completed and now in China, use. Corridor links Harbin Border cost Poltavka crossing Russian (9) with Russian Federation reduction Federation through Suifenhe, a China, Chinese land port. Seaside 1 Harbin–Ussuriysk Russian Rail upgrade (9) Vostochny sea port is in 6. Corridor Operational 26-Sep-18 (8) Federation use. Greatly shortens trip (Primorye-1) Road from factory to sea port for Ussuriysk–China Russian reconstructio (9) northwest China. Eases border Federation n travel and customs regime Vladivostok– Russian New divided between China to (9) Nakhodka Federation road Vladivostok. Russian Vostochny Port New seaport (9) Federation Choibalsan–Arixan Mongolia New rail (1) Launched this year. The Seaside 2 China, first test overload occurred 7. Corridor Kraskino-Hunchun Border cost Operational 13-Nov-18 (10) Russian (9) in April 2018 and in (Primorye-2) crossing reduction Federation September, a new 53 China border– Russian Hunchun-Zarubino- New rail (9) Zarubino Federation Ningbo transit line was China border– Russian New divided opened within the (9) Zarubino Federation road Primorye-2. The corridor connects Hunchun, a Russian border city in Jilin Zarubino Port New seaport (9) Federation Province and the port of Zarubino. Russian The link was tested for Ulan-Ude–Erenhot Federation, New road (1) (11) operations in August 2016 Mongolia and has been in use since. 8. Highway AH-3 Operational 30-Sep-18 (12) It is Ulaanbaatar’s only Road Erehnot–Jining China (1) modern road link to China upgrade and Russian Federation. Open for use but construction still ongoing. Russian Novosibirsk– Part of Asian Highway 4 Federation, 9. Highway AH-4 Khovd– New road (1) Operational which runs from 30-Sep-18 (13) Mongolia, Urumqi Novosibirsk to Karachi. China Virtually empty from Russian border to Urumqi. Khuut–Tavan Civil works underway in Tolgoi–Gushun Mongolia New rail (4) Mongolia, scheduled Southern Coal Under 10. Suhait completion in 2019. 12-Feb-18 (14) Railway Construction Gushun Suhait– Chinese section China New rail (15) Baotou operational. NEW The railway links the EURASIAN world's biggest dry port Khorgos-Aktau New hicap LAND 11. Khorgos–Zhetygen Kazakhstan (16) Operational Khorgos (China) and Aktau 15-Apr-17 (17) Railway rail BRIDGE port (Kazakhstan). (NELB) Jezkazgan and Beyneu rail 54 Jezkazgan– links completed in 2015. Kazakhstan New rail (18) Saksaulsky Khorgos opened in 2017. (18) Aktau port is continuously Beyneu–Shalkar Kazakhstan New rail (19) being upgraded but remains China, Border cost operational. This project Khorgos Dry Port (16) Kazakhstan reduction makes it feasible to ship from Xinjiang to the Aktau Port Kazakhstan New seaport (16) Caspian sea. In May 2018, Eurasian Development Bank Moscow-Kazan Russian New hicap committed to funding, 12. Moscow–Kazan (20) Proposed 30-May-18 (21) HSR Federation rail signing a cooperation agreement with Russian Railways. A new section of railway Urumqi- New hicap came into operation 13. Urumqi–Khorgos China (22) Operational 30-May-18 (23) Khorgos rail rail between Khorgos and Urumqi. Some construction is Urumqi- New divided ongoing but the road is 14. Urumqi–Khorgos China (24) Operational 30-May-18 (23) Khorgos road road open for use between China and Kazakhstan. Currently in use although (25) Khorgos- New divided some related civil works (23) 15. Khorgos–Almaty Kazakhstan (26) Operational 30-May-18 Almaty road road mostly funded by China (28) (27) are still underway. Currently in use although Highway Road (26) (29) 16. Astana–Pavlodar Kazakhstan Operational other civil works are still 7-Sep-18 P4/A17 upgrade (27) (28) underway. 55 Currently in use but Kazakhstan is still Road (26) (30) 17. Highway M36 Astana–Karaganda Kazakhstan Operational embarking on other 7-Sep-18 upgrade (27) (28) expansions and upgrades for the road. Road The upgraded road runs Almaty–Shymkent Kazakhstan (27) upgrade from Almaty to a point past 18. Highway A2 Operational Uzynagash. It continues as 11-Oct-18 (28) Shymkent– Kazakhstan, Road (26) two-lane highway to Tashkent Uzbekistan upgrade (27) Shymkent. Shymkent– Kazakhstan, Road (26) 19. Highway M32 Operational Currently in use. 11-Oct-18 (28) Tashkent Uzbekistan upgrade (27) CHINA- Electrification project CENTRAL Tehran-Mashad Iran, Islamic Under started in 2017 and is 20. Tehran–Mashhad Rail upgrade (31) 4-May-18 (32) ASIA- rail Rep. Construction projected to be completed WEST ASIA in 48 months. ECONOMIC Construction led by China CORRIDO Railway Engineering R Corporation. Expected Tehran-Isfahan Tehran–Qom– Iran, Islamic New hicap Under (CCWAEC) 21. (31) completion 2021. The 25-Nov-18 (33) HSR Isfahan Rep. rail Construction Islamic Republic of Iran’s first high speed rail connection. China, Proposal with potential Kyrgyz Kashgar–Andijan New rail (34) Proposed route but no concrete 19-Feb-18 (34) Kashgar- Republic, 22. plans. Tashkent rail Uzbekistan New hicap Pap–Tashkent Uzbekistan (35) Operational Line opened June 2016. 15-Feb-16 (35) rail Sher Khan- Sher Khan– Under Termiz extension (37) 23. Afghanistan New rail (36) 7-Nov-18 Herat rail Kunduz–Herat Construction operational since 2012. (38) 56 Expected completion March 2019. Uzbekistan, Samarkand- Samarkand– Turkmen., Completed, and now 24. Rail upgrade (39) Operational 1-Jun-18 (40) Mashhad rail Ashgabat–Mashhad Iran, Islamic operational. Rep. China, Kashgar- Kyrgyz (41) Tajikistan and China in 25. Kashgar–Dushanbe New rail Proposed 1-Sept-17 (43) Dushanbe rail Republic, (42) talks to build rail. Tajikistan In 2013, China Road and Bridge Corporation Road North-South Jalalabad–Töö Kyrgyz Under (CRBC) appointed as 26. reconstructio (44) 1-May-18 (45) Alternate Road Ashuu Republic Construction contractor, funds linked to n a loan from the Export- Import Bank of China. 27. Discussions still underway Dushanbe- Dushanbe– Tajikistan Rail upgrade (42) Proposed between China and 23-Aug-18 (42) Afghan Rail Kolkhozabad Tajikistan. Aktau–Baku Kazakhstan New sea link (46) Baku, Aktau and Turkmenbashi ports (47) 28. Baku Port Turkmenbashi– Turkmenista Operational 5-Jul-18 New sea link (49) operational. Turkmenbashi (48) Baku n opened recently. Launched in October Baku-Tbilisi Azerbaijan, 2017. Though its planning 29. Baku–Ganja–Tbilisi Rail upgrade (50) Operational 30-Oct-18 (51) Rail Georgia began in 2007, is was postponed several times. Construction officially Tbilisi-Kars Georgia, 30. Tbilisi – Kars New rail (50) Operational completed in October 28-May-18 (52) Rail Turkey 2017 as indicated above. 57 (53) In use but developments Anaklia port Georgia New port (54) are continuing, e.g. New hicap reclaiming 5.0 million Anaklia Georgia (53) rail cubic meters of sand from 31. Anaklia port Operational 28-Jul-18 (55) the sea and placement of Georgia, the dredged material. To Anaklia–Istanbul New sea link (53) Turkey be operational by December 2020 The Port is in use and expansions are still New ports (53) 32. Ambarli Port Istanbul Turkey Operational ongoing. Chinese private 21-Apr-18 (57) and sea links (56) firms are now making huge investments. New berths were added this year. Piraeus, the 7th Major port 33. Piraeus Port Athens Greece (58) Operational largest seaport in Europe 27-Feb-18 (59) expansion was in 2016 sold to a Chinese firm by Greece. CHINA- Tashkurgan– No evidence of progress on 34. Yarkant Road China New road (60) Proposed 25-Jun-17 (61) PAKISTAN Yarkant (Shache) proposed class-II highway ECONOMIC Road Reconstruction of China- CORRIDO Kashgar–Khunjerab China reconstructio (62) Pakistan Highway still R (CPEC) n underway and is expected Raikot–Shinkiari Pakistan New road (60) to be completed by 2020. Karakoram Under Highway follows historic 35. 19-Oct-18 (61) Highway Construction trade route. Khunjerab Pass Road is the only connection Shinkiari–Burhan Pakistan (60) upgrade between China and Pakistan. Previous upgrades were done outside scope of 58 BRI after floods washed out Pakistani roads. Feasibility study planned. Considered a “missing Kashgar– China-Pakistan China, link” in the Asia railway 36. Khunjerab– New rail (63) Proposed 7-Nov-18 (64) Rail Pakistan network. Would connect Taxila to Chinese rail network at Kashgar (Kashi). Havelian- Upgrade of ML-1 of Hyderabad Pakistan Railways began in Havelian–Larkana– Under 37. capacity Pakistan Rail upgrade (60) 2018. The project's two 21-Mar-18 (65) Hyderabad Construction expansion (ML- phases are expected to be 1) completed by 2022. Under negotiation, but Pakistan recently cut Karachi- Karachi– funding by 2 Bn USD. Peshawar 38. Hyderabad– Pakistan Rail upgrade (60) Planning This railway connects all of 2-Oct-18 (66) capacity Lahore–Peshawar Pakistan’s major cities and expansion is a transport backbone for the country. The feasibility study has just been completed Kotla Jam–Quetta– 39. Gwadar rail Pakistan New rail (60) Planning awaiting approval from 2-Apr-18 (67) Gwadar Chinese and Pakistan governments. Alternative As of late 2018, no (68) 40. Gwadar rail Gwadar–Karachi Pakistan New railroad (60) Proposed concrete plans, though still 30-Oct-18 (69) passage mentioned in discussions. In final approval stage. Besima- 41. Besima–Jacobabad Pakistan New railroad (60) Planning Completion expected 27-Mar-18 (70) Jacobabad rail 2023. 59 M3/M4 M2/M3 Bridge– Launched in May 2018 and 42. Multan Pakistan New road (60) Operational 27-May-18 (71) Faisalabad–Multan now in use. Highway By October 2018, all Lahore-Abdul Lahore–Abdul Road upgrades were completed, 43. Hakeem road Pakistan (60) Operational 9-Nov-18 (72) Hakeem upgrade and the highway is ready upgrade for opening to traffic. The first section of the two-way six-lane road was Multan-Sukkur Road Under launched in 2018 and is 44. Multan–Sukkur Pakistan (60) 17-Sep-18 (73) road upgrade Construction operational. The rest is under construction and to be completed by 2019. Gwadar-Surab Gwadar–Panjgur– Launched in 2016 and now 45. Pakistan New road (60) Operational 10-Sep-17 (74) road Surab operational. Road Surab-DI Khan Surab–Quetta–DI Launched in 2017 and now (74) 46. Pakistan reconstructio (60) Operational 26-Nov-17 road Khan in use. (75) n Construction completed in early 2018. Work was Sukkur– M8 Sukkur- finished by the Pakistan 47. Shahdadkot– Pakistan New road (60) Operational 9-Apr-18 (76) Besima road Army after Chinese Besima contractors refused to work out of security concerns. Marked as “medium to Shahdadkot-DI Shahdadkot–DI long-term” on CPEC 48. Pakistan New road (60) Planned 25-Nov-18 (77) Khan road Khan maps. No evidence of concrete steps. BANGLADE Bangladesh, Chinese officials reiterate Kunming- Kunming– New hicap SH 49. China, India, (78) Proposed support for the idea, but no 13-Sep-18 (79) Calcutta HSR Mandalay– rail Myanmar concrete plans. 60 -CHINA- Chittagong–Dhaka– INDIA- Calcutta MYANMAR Under construction since Dali-Lashio China, Under ECONOMIC 50. Dali–Ruili–Lashio New rail (80) 2011, scheduled for 26-Sep-18 (81) railway Myanmar Construction CORRIDO completion in 2021. R Civil works are underway Kalay-Jiribam Kalay–Tamu– Myanmar, Under (82) (BCIM) 51. New rail (80) for the rail which will link 18-May-15 rail Jiribam India Construction (83) India and Myanmar. Dhaka- Bangladesh, 52. Dhaka–Bongaon New rail (80) Proposed Still being discussed 5-Sep-18 (84) Bongaon rail India Kyaukpyu–Ann Myanmar New rail (85) On 8 November 2018, Kyaukpyu– Road Myanmar and China Myanmar (85) Mandalay upgrade agreed to scale down the 53. Kyaukpyu port Planning 8-Nov-18 (86) project from US$10 Bn to Kyaukpyu Myanmar New seaport (87) US1.3 Bn, from 10 to 2 berths. CHINA- Almost 25% works done, INDOCHIN project to be completed by A Kunming- Kunming– China, Lao Under 2021. Kunming-Hekou rail 54. New rail (88) 22-Jul-18 (89) PENINSULA Vientiane rail Vientiane PDR Construction on China side operational, ECONOMIC with wider track boosting CORRIDO cargo capacity. R Conventional rail (CICPEC) operational since 2009. Bangkok- Thailand, Under High Speed Rail upgrade 55. Bangkok–Vientiane Rail upgrade (90) 11-Feb-18 (91) Vientiane rail Lao PDR Construction to Nakhon Ratchasima exp. by 2020 with future plans to reach Laos. 61 Construction began in August 2017. On 3 July 2018, Malaysia instructed 13-Sep-18, East Coast Rail Kuala Lumpur– New hicap Cancelled or China Communications 56. Malaysia (92) 4-Nov-18 (93) Link (ECRL) Kota Bharu rail postponed Construction to suspend all 12-Apr-19 works. On 12 April 2019, works allowed to resume, given a 1/3 cost reduction Malaysia Transport Gemas-Johor Under Minister reports that 57. Gemas–Johor Bahru Malaysia Rail upgrade (94) 30-Jul-18 (95) rail upgrade Construction upgrade is 20% complete, to be finished in 2022 Bangkok–Pedang Discussions still underway. Bangkok-Kuala Thailand, 58. Besar–Kuala Rail upgrade (96) Proposed Operations are targeted to 7-Nov-18 (97) Lumpur HSR Malaysia Lumpur begin by end of 2026. Officially suspended on Sep 5, 2018 at Malaysia’s Kuala Lumpur– Kuala Lumpur- Malaysia, New hicap Cancelled or request. Singapore officials 59. Seremban– (98) 7-Sep-18 (99) Singapore HSR Singapore rail postponed report that the construction Singapore will resume by May 31, 2020. Planning began in 2007, Vietnam Hanoi–Ho Chi 60. Vietnam Rail upgrade (100) Proposed paused in 2010, now being 8-Apr-18 (101) National HSR Minh City reconsidered. Still being discussed. Vietnam- Phnom Penh–Ho Cambodia, Though work on the 15-Feb-18, (103) 61 New rail (102) Proposed Cambodia rail Chi Minh City Vietnam Bangkok-Phnom Penh rail 28-Jun-18 (104) crossing has commenced. Link still being Nam Tok– Thailand, 62. Burma railway New rail (105) Planned “considered”. Railway was 22-Jan-18 (106) Thanbyuzayat Myanmar built by Japan using forced 62 labor in WWII, later destroyed. Difficult terrain and troubled history make construction difficult. Phnom Penh– Cambodia’s only Cambodia New rail (107) Sihanoukville deepwater port. Sihanoukville Phnom Penh– New divided Under Accompanying special 63. Cambodia (107) 12-Sep-18 (108) port Sihanoukville road Construction economic zone planned. Expected completion of all Sihanoukville Cambodia New seaport (107) projects by 2023. Discussions still underway with Chinese and non- Chinese companies New sea 64. Thai Canal Satun–Songkhla Thailand (109) Proposed interested. Also known as 6-Apr-18 (110) links “Kra Canal”. Would provide alternative to Strait of Malacca chokepoint. ADDENDU Commercial operations M: began January 2018. To be SELECTED operated by Chinese firms Addis Abeba- RAIL Addis Abeba- Djibouti, until 2023, and after by the (112) 65. Djibouti New rail (111) Operational 19-Nov-18 PROJECTS Djibouti city Ethiopia Ethio-Djibouti Standard (113) Railway IN AFRICA Gauge Rail Transport S.C., a joint venture between Djibouti and Ethiopia. Kenya-Ethiopia link Addis Abeba- Addis Abeba- Ethiopia, mentioned among other 66. Nairobi New rail (114) Proposed 25-Nov-18 (115) Nairobi Kenya proposals. No evidence of Railway concrete steps. Juba-Mombasa Kenya, South Under China has agreed to finance 67. Juba-Mombasa New rail (114) 16-June-18 (116) Railway Sudan Construction and green light has been 63 given by governments. So far only Nairobi-Naivashsa has been built, less than 1/10 of the way to Juba. TABLE B2: MARITIME SILK ROAD (“ROAD”) TYPE (SEE STATUS STATUS PASSAGE AREA NO. PROJECT COUNTRIES TABLE 3) REF. STATUS DETAIL DATE REF CHINA-INDIAN Indian Ocean Port approved in 2013, OCEAN-AFRICA- (Africa) negotiations still in Bagamoyo New MEDITERRANEAN 68. Tanzania (117) Planned progress. Possibly shelved 6-Feb-18 (118) Port seaport SEA (CIAM) by Tanzania gov’t in favor BLUE ECONOMIC of existing Dar es Salaam. PASSAGE Dar es Seaport Under Improvements for Dar es 69. Tanzania (119) 1-Sep-18 (120) Salaam Port expansion Construction Salaam port commenced. In progress. Initiated by Kenya in 2007, completion expected in New Under 6-Nov- 70. Lamu Port Kenya (121) 2020. Lamu will serve as a (122) seaport Construction 18 terminus for new Chinese- built rail links throughout East Africa. The three countries Mozambique, Botswana and Zimbabwe signed Techobanine New 18-Apr- 71. Mozambique (123) Proposed MoU in 2006 but no (124) Port seaport 18 physical progress. Discussions have been resumed after hiatus. 64 Seaport In use, continuous 10-Nov- 72. Beira Port Mozambique (125) Operational (126) expansion improvements ongoing. 18 Expansions to continue until 2025. Port given to New (66) 73. Gwadar Port Pakistan (127) Operational China on 40-year lease 2-Apr-18 seaport (128) due to payment difficulties. Indian Ocean The port is part of (Asia) Omani's development New masterplan initiated in 74. Duqm Port Oman (129) Planning 4-Jun-18 (130) seaport 2011 to make Duqm an important port/city in the Arab World. In use, improvements still underway, Sri Lanka Hambantota New 75. Sri Lanka (131) Operational leased to Chinese state 4-Jun-18 (132) Port seaport firm to help with construction cost payment. Built on land reclaimed from the Indian Ocean and funded with 1.4 Bn USD Chinese investment. Colombo New Under 76. Sri Lanka (133) To be completed in 2020. 2-Aug-18 (134) Port City seaport Construction Project aims to create a world class city in Sri Lanka on the model of Dubai. Myanmar and China Kyaukpyu New agreed to scale down the 8-Nov- 77. Myanmar (87) Planning (135) Port seaport project in 2018 from 10 to 18 1.3 Bn USD. With rail 65 link through Myanmar to China, this would present an alternative route to the Strait of Malacca. Port was scheduled for completion in 2019. As of Under 2018 no construction has Melaka New 78. Malaysia (136) Construction been done and regulatory 12-Jul-18 (137) Gateway seaport (Stalled) approval has officially lapsed. Future of project is uncertain. Minor existing port is in use. Officials have discussed expansion under Kuala Linggi New 10-Nov- 79. Malaysia (136) Planned BRI. Along with Melaka, (138) Port seaport 18 would provide alternative to Singapore as Strait of Malacca hub. New Now in use and cruise 14-Nov- 80. Penang Port Malaysia (136) Operational (139) seaport ships have started docking. 18 Partly operational; full completion by 2023. Sihanoukville New Under Accompanied by special 26-Jun- 81. Cambodia (107) (140) Port seaport Construction economic zone built on 18 Shenzhen model, touted as “next Macao”. Mediterranean Suez Area provides incentives Sea Economic Egypt, Arab New Under for Egyptian and Chinese 24-Oct- 82. and Trade (141) (142) Rep. seaport Construction companies to set up 18 Cooperation factories and R&D with Zone 66 focus on tech. Located near Suez Canal. China Harbor Engineering Company finished work to New deepen Yuzhny Port. 83. Yuzhny Port Ukraine (143) Operational 21-Jan-18 (144) seaport Located near Odessa, it provides an alternative to Russian-held Sevastopol. In use, new berths were added this year. Piraeus, New the 7th largest seaport in 27-Feb- 84. Piraeus Port Greece (58) Operational (59) seaport Europe was in 2016 sold 18 to a Chinese firm by Greece. Atlantic Work in progress and is New Under Ocean 85. Cabinda Port Angola (145) being financed by Chinese 25-Jan-17 (146) seaport Construction backed companies. Work in progress on N’Diago New Under Mauritania's largest sea 13-Dec- 86. Mauritania (147) (148) Port seaport Construction port, located near 17 Senegalese border. In use but some civil works are still ongoing. New There are concerns over 14-Oct- 87. Tema Port Ghana (149) Operational (150) seaport government’s inability to 18 negotiate a better deal with port developers. Pacific Ocean Thailand still discussing New sea 88. Thai canal Thailand (109) Proposed with China to build the 6-Apr-18 (110) links new canal. Thailand's new 67 king wants to execute the canal project as part of the BRI. Canal would bypass Malacca Strait chokepoint. The upgrading works were completed in 2018, New however the port will be 4-Nov- 89. Kuantan Port Malaysia (151) Operational (95) seaport affected adversely by the 18 suspension of ECRL project by Malaysia. CHINA-OCEANIA- Pacific Ocean (none — — — — — — — — SOUTH PACIFIC proposed) (COS) Indian Ocean 2015 deal gives Chinese BLUE ECONOMIC firm Landbridge 99-year PASSAGE Seaport lease. Port has now 17-Jun- 90. Darwin Port Australia (152) Operational (153) expansion borrowed heavily, raising 18 concerns about debt sustainability. ICE SILK ROAD Arctic Ocean Potential alternative to (ISR) Suez Canal between Asia to Europe, shorter distance Northern Sea Russian New sea 4-Nov- 91. (136) Planning and more secure. Russian (154) Route Federation link 18 Federation and China are intensifying feasibility studies of this route. This new mega port valued at 2.3 Bn USD New Dvina Russian New 19-Jun- 92. (136) Planning would be Russian (155) Port Federation seaport 18 Federation's central hub for trade with Europe, the 68 Asia-Pacific region and North America. Railway would link this port to Baltic via Finland, Kirkenes New 10-Oct- 93. Norway (156) Proposed opening up to Europe. 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Add to switch Halfway No Using instead of external =8.1, between Add retail reduction =15.7, terminal simple GDP for Oxford No tariffs ESCAP-WB markets Labor share for agri- road and Labor share distribution in trade for handling average market Economics or border tariffs and (Rest of Baseline =0.8 culture rail =0 costs costs mining charges tariff size GDP costs border costs World) Baseline 1 1 0.99 1 0.98 0.98 0.97 0.97 0.96 0.94 0.91 0.91 0.85 0.76 0.71 Labor share =0.8 1 1 1 0.99 0.98 0.98 0.98 0.97 0.96 0.95 0.92 0.91 0.85 0.76 0.71 =8.11, for agriculture 0.99 1 1 0.99 0.98 0.98 0.98 0.98 0.96 0.94 0.92 0.92 0.85 0.75 0.72 No cost to switch between road and rail 1 0.99 0.99 1 0.98 0.98 0.97 0.97 0.96 0.94 0.92 0.91 0.85 0.76 0.72 Labor share =0 0.98 0.98 0.98 0.98 1 0.97 0.96 0.97 0.94 0.93 0.93 0.93 0.87 0.77 0.71 Add retail distribution costs 0.98 0.98 0.98 0.98 0.97 1 0.96 0.96 0.95 0.96 0.9 0.89 0.86 0.77 0.71 Halfway reduction in trade costs 0.97 0.98 0.98 0.97 0.96 0.96 1 0.96 0.95 0.92 0.89 0.89 0.83 0.72 0.69 =15.72, for mining 0.97 0.97 0.98 0.97 0.97 0.96 0.96 1 0.93 0.92 0.92 0.92 0.83 0.74 0.72 No terminal handling charges 0.96 0.96 0.96 0.96 0.94 0.95 0.95 0.93 1 0.92 0.86 0.86 0.81 0.73 0.7 Using simple average tariff 0.94 0.95 0.94 0.94 0.93 0.96 0.92 0.92 0.92 1 0.88 0.86 0.83 0.78 0.7 Using population instead of GDP for market size 0.91 0.92 0.92 0.92 0.93 0.9 0.89 0.92 0.86 0.88 1 0.97 0.85 0.81 0.77 Oxford Economics GDP 0.91 0.91 0.92 0.91 0.93 0.89 0.89 0.92 0.86 0.86 0.97 1 0.85 0.81 0.8 No tariffs or border costs 0.85 0.85 0.85 0.85 0.87 0.86 0.83 0.83 0.81 0.83 0.85 0.85 1 0.83 0.7 78 ESCAP-WB tariffs and border costs 0.76 0.76 0.75 0.76 0.77 0.77 0.72 0.74 0.73 0.78 0.81 0.81 0.83 1 0.64 Add external markets (Rest of World) 0.71 0.71 0.72 0.72 0.71 0.71 0.69 0.72 0.7 0.7 0.77 0.8 0.7 0.64 1 79 APPENDIX C: COUNTERFACTUAL OUTPUT ACCOUNTING FOR FACTOR MOBILITY (NOT FOR PUBLICATION) Step 1: Estimate Baseline Productivity and Land Quantity Begin with equation (5) from Donaldson and Hornbeck (2016), originally a result of Eaton and Kortum (2002), which gives the value of total exports from o to d, − = 1 ( )− −1 . Sum this equation over all locations d, and apply the goods market clearing condition to yield each location’s total output − = ∑ = 1 ( )− ∑ −1 − = 1 ( ) . Combining equations (3) and (4) from Donaldson and Hornbeck (2016) yields the spatial ̅ ̅ −1/ equilibrium condition in terms of consumer market access, = = . Further, due to the Cobb Douglas technology, = . Substitute these two identities into the equation above and take logs to yield ln ( ) = ln(1 ) + ln( ) − ln ( ̅ ) + ln( ). ) + ln( Rearranging terms yields ( + )( ) = + ( ) + ( ) + ( ), (5) where 2 = ln ( 1 ̅ such that 2 = 0 yields an expression for that ). The normalization of ̅ allows us to infer productivity (normalized by the quantity of land) from only baseline output, consumer market access and firm market access. We call this ̂ ) ≡ ln( ln( ) − ln( ) − ln( ). ) = (1 + )ln ( Step 2: Calculate Counterfactual Output. 80 Equation (5) defines counterfactual output and utility as a function of estimated baseline productivity and the new values of consumer and firm market access: 1 ln (′ ) − ′ 3 = ̂ ) + ln(′ ) + ln(′ )] [ ln( (6) (1 + ) 1 1 where ′ 3 = (1+) ln ( ( ̅ ′ is utility after the road is constructed. This ) and the term ̅ ′ ) equation highlights that the new values of market access can result in multiple values of counterfactual output, depending on whether total utility changes as a result of the investment. As ̅ ′ depends on whether the network is open described in Donaldson and Hornbeck, the change in to foreign factors; that is, whether additional population and capital from countries outside the BRI can move to BRI cities. ̅) and equation (6) becomes ̅ ′ = If the BRI countries are small enough, total utility remains fixed ( 1 ln (′ ) = ̂ ) + ln(′ ) + ln(′ )] [ ln( (7) (1 + ) Theorem 1 of Allen and Arkolakis (2014) states that ′ is a unique fixed point, which may be found through an iterative algorithm. To find it, begin by plugging into the right hand side of (7) values of ′ and ′ calculated using ′ , the new set of transportation costs, and , the original values of output in each location. This yields a new value of ′. Next, recalculate ′ and ′ using this new value of output in each location, and plug them back into (7) to yield a next value of ′. Eventually this will converge to the unique fixed point. 81