This is an interview article in which Dr. Yasuyuki Todo, Program Director and Faculty Fellow at the Research Institute of Economy, Trade and Industry (RIETI), explains the impact of China's Belt and Road Initiative on foreign direct investment, trade, and political relations in various countries based on three research papers. The comprehensive empirical analysis covers the period from 2013 to 2021 using staggered difference-in-differences methodology.
The Belt and Road Initiative has grown into a massive economic sphere with 151 participating countries as of December 2023, with China providing 210 trillion yen in financial support between 2013 and 2021. Although financial support has declined sharply since 2018, 80 new countries joined, accounting for about half of all participants, and economic sphere expansion continues through transportation, energy, and ICT infrastructure development worldwide.
Analysis of the impact on foreign direct investment from various countries revealed that FDI from China increased due to BRI participation, and FDI from the United States also increased due to the need for strategic competition. Meanwhile, FDI from Japan and Germany showed no change, while FDI from the UK decreased due to economic security concerns, demonstrating for the first time that effects differ by investing country.
Regarding political and economic relations with Japan, the number of infrastructure projects won by Japan decreased in BRI participating countries, and the number of VIP visits from participating countries to Japan also decreased. However, Japan's ODA disbursements and VIP visits remained unchanged, confirming a crowding-out effect from Chinese infrastructure projects.
In terms of trade, exports from participating countries to China increased, and exports from participating countries to non-China destinations also increased, improving overall export capacity. Interestingly, exports to China from non-participating countries with similar industrial structures to participating countries decreased, resulting in opportunity costs from non-participation.
Regarding governance impacts, contrary to general perceptions, corruption levels in participating countries decreased and the rule of law improved. However, micro-data shows increased corruption in areas surrounding aid projects, indicating that governance impacts remain unclear at this point.
The research employs staggered difference-in-differences analysis to correct for estimation bias due to varying participation years across countries. Careful consideration ensures that pre-participation changes in trade and investment are on average similar to non-participating countries, and accounts for the possibility that early participants may experience larger effects.
Policy implications highlight the importance of strengthening relationships with Global South countries for supply chain resilience and economic security. Japan's presence has remained flat or decreased to some extent, with the strictness of OECD foreign aid rules being one factor that makes Chinese aid welcome. The study emphasizes the need to consider ODA approaches that create win-win situations for both donor and recipient countries.