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Common Transport Infrastructure: A Quantitative Model and Estimates from the Belt and Road Initiative

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Abstract

This paper presents a structural general equilibrium model to analyze the effects on trade, welfare, and gross domestic product of common transport infrastructure. The model builds on Caliendo and Parro (2015) to allow for changes in trade costs due to improvements in transportation infrastructure, financed through domestic taxation, connecting multiple countries. The model highlights the trade impact of infrastructure investments through cross-border input-output linkages. This framework is then used to quantify the impact of the Belt and Road Initiative. Using new estimates on the effects on trade costs of transport infrastructure related to the initiative, the model shows that gross domestic product will increase by up to 3.4 percent for participating countries and by up to 2.9 percent for the world. Because trade gains are not commensurate with projected investments, some countries may experience a negative welfare effect due to the high cost of the infrastructure.

Suggested Citation

  • Francois de Soyres & Alen Mulabdic & Michele Ruta, 2020. "Common Transport Infrastructure: A Quantitative Model and Estimates from the Belt and Road Initiative," International Finance Discussion Papers 1273, Board of Governors of the Federal Reserve System (U.S.).
    • Handle: RePEc:fip:fedgif:1273
    DOI: 10.17016/IFDP.2020.1273
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    More about this item

    Keywords

    Transportation infrastructure; Trade; Structural general equilibrium; Belt and road;
    All these keywords.

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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