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The Belt and Road Initiative and Debt Risk of the Countries along the Way: Effect and Mechanism

【Authors】
QIU Yu & PAN Pan
【WorkUnit】
QIU Yu (Southwestern University of Finance and Economics, 611130)PAN Pan (Central South University, 410083)
【Abstract】

In recent years, as China asserts a growing influence on the international arena, so many conspiracy theories about Chinese programs have emerged, which has aroused extensive attention of the world. On this account, we construct a theoretical model to examine how the Belt and Road Initiative affects the debt risk of the countries along the way, and then empirically test the theoretical model with the data of these countries from 2010 to 2017. The empirical study results validate the theoretical model expectations. We find that, firstly, the Belt and Road Initiative lowers the debt risk of the countries along the way. Secondly, from the perspective of the working mechanism, the Belt and Road Initiative mainly affects the debt risk of the countries along the way by restricting their debt size and enhancing their fiscal sustainability. Thirdly, further tests show that different involvement degree in the Initiative leads to different debt risk suppression effects. Specifically, the countries which have signed the memorandum of understanding with China on the “Belt and Road” Initiative are deeply involved in the “Belt and Road” construction and experience better debt risk suppression effect than those which have not. The results prove robust after a series of endogenous tests with the instrumental variable method, Heckman two-stage analysis and replacement of core variables. This study provides theoretical support for Chinese programs and important implications for the countries all over the world to understand these programs.


JEL:H63, E61, E62

【KeyWords】
The Belt and Road Initiative, Debt Risk, Debt Scale, Financial Sustainability