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Leveraging external debt: Stimulate innovation by infrastructure development in Belt and Road countries

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  • Han, Yonghui
  • Mai, Jinghua
  • Zhang, Fan
  • Luo, Ruilin

Abstract

Debt caused by the growing infrastructure projects in the Belt and Road Initiative (BRI) countries is a highly debated issue. Grounded in a latecomers’ innovation catching-up perspective, this study examines the effect of infrastructure development on innovation outputs within BRI countries. Based on country-level data from 2010 to 2021, we find that infrastructure development significantly enhances innovation performance in BRI countries. Notably, the effect is attributed to countries’ external debt. Countries with higher debt management capability, national solvency and debt utilization efficiency, can amplify the beneficial influence of infrastructure development on innovation performance. Furthermore, external debt not only serves as an input of physical capital but also acts as a catalyst for innovation by promoting technology absorption and industrial development. While China’s sovereign lending to these countries effectively promotes innovation, debt pressure remains manageable. This paper contrasts with the held notion that infrastructure development constitutes the debt crisis. Our results shed new light on the efficacy of external debt, the external debt results in an expansion of innovation catching-up patterns of BRI countries rather than debt crisis.

Suggested Citation

  • Han, Yonghui & Mai, Jinghua & Zhang, Fan & Luo, Ruilin, 2025. "Leveraging external debt: Stimulate innovation by infrastructure development in Belt and Road countries," Economic Analysis and Policy, Elsevier, vol. 86(C), pages 1214-1243.
    • Handle: RePEc:eee:ecanpo:v:86:y:2025:i:c:p:1214-1243
    DOI: 10.1016/j.eap.2025.04.031
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    JEL classification:

    • F02 - International Economics - - General - - - International Economic Order and Integration
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D

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