China & World Economy, 2021, Volume 29, Issue 5

Authors: Yue Lu, Wei Gu, Ka Zeng

Abstract: This paper examines the role of the Belt and Road Initiative (BRl) in enhancing political relations between China and its partner countries. We postulate that an international economic cooperation scheme such as the BRl may facilitate commercial exchanges and increase the participating countries' economic gains. This should generate incentives for these countries to avoid political tensions that may jeopardize mutually beneficial economic exchanges, and to expand the constellation of domestic coalitions in support of cordial diplomatic and political relations. We test the effect of the BRl on bilateral political relations using data on political relations between China and 91 countries along the BRl route between 2006 and 2018. Treating the promulgation of the BRl in 2013 as a policy shock, our difference-in-difference analysis lends substantial support to our hypotheses. Further analyses of the underlying causal mechanisms suggest that the BRl bolsters political relations by strengthening economic ties with partner countries through trade and investment related to economic cooperation.

Key Words: BRI; international economic cooperation; political relations