Political relations and the Belt and Road financial cooperation

This study attempts to investigate the influence of political relations on the depth of BRI financial cooperation. This research first theoretically explains the unique impact of political relations on the development of financial cooperation using a network evolutionary gaming analysis. Then through the Generalized Least Square (GLS) and Propensity Score Method (PSM) model, this paper empirically shows that political relations can influence the establishment of financial cooperation after accounting for the possible endogenous effect. In addition, the countries more politically intimate with China than the U.S. are more likely to form financial cooperation with China. The results are robust with respect to the choice of different models, including Heckman two-steps method of treatment effects model, and long term OLS model. This study provides insights for the future of the multi-currency international monetary system, as a contrast to the U.S. dollar dominated international monetary system.