The "Belt and Road Initiative" and comparative regional productivity in China

We study potential internal effects of China's Belt and Road Initiative. These effects may occur sooner than the international effects, since they face no delay from partner negotiations and from financing and security concerns. For a key part of the overland Silk Road Economic Belt, we identify 46 prefectural-level units in a corridor from the China-Kazakh border to Xi'an that are likely to see increased investment and economic activity from Belt and Road. These units are smaller, more diverse, poorer, and less productive than are prefectural-level units in the rest of China. The Belt and Road Initiative will disperse some economic activity to places that the market would not direct it, such as to this corridor. Given that these areas are less productive and are likely to have lower absorptive capacity, investments here will have an efficiency cost since they should yield more GDP if deployed elsewhere in China.