Does China’s Belt and Road Initiative create economic dependence in recipient countries?

Abstract

The paper examines the question of whether the Belt and Road Initiative (BRI) in China generates economic dependency in recipient nations by combining primary evidence of an expert survey with an econometric analysis of country-year panel data. The study formulates and tests three hypotheses, namely: higher BRI exposure leads to a higher economic dependency level, higher BRI-related finance leads to higher susceptibility to debt, and stronger domestic institutionalization lessens these impacts. The specialist interview, which took place in 8 recipient nations (N = 140), demonstrates the high ceiling effect in the perceptions of dependence, which promotes the necessity to complement the perceptual data with objective measures. The first hypothesis is well supported as panel analysis, with a major component-based DependenceIndex, indicates a strong and statistically significant relationship between BRI exposure and economic dependence. The fact that BRI finance is a factor in both debt and trade asymmetries can be considered as evidence to the second hypothesis but the effect is conditional: it does not consistently have destabilising effects and does not occur evenly in all settings. The third hypothesis is partly justified, with findings that reveal that, more well-established countries in terms of institutions have less dependence effect. The contribution of the study to the literature is that it provides a combination of expert perceptions with macroeconomic factors, a multidimensional perspective of dependence and demonstrates that the results are not merely determined by the exposure but also by the domestic governance. Policies such as enhancing transparency of debts, enhancing procurement procedures, diversifying sources of finance, and incorporation of stringent project appraisal mechanisms are among the suggested policy recommendations. These are the limited scope of the survey of the experts and difficulty of endogeneity issues. Further studies should broaden the data scope, include project level evidence and assess heterogeneity by sector and type of creditor. In general, the results imply that the BRI can form economic dependence, yet the nature and the scale of that dependence are contingent and moderated by the institutional decisions of recipient nations.