The Role Of Infrastructure In Trade And Foreign Direct Investment

This study investigates the impact of infrastructure on trade and foreign direct investment in Belt & Road countries during 1990 – 2017 by applying System GMM approach.The results confirmed the significant and positive impact of aggregate and sub-indices(i.e.transport,telecommunication,energy and financial sector)of infrastructure on trade and foreign direct investment in total sample as well is in grouped samples(like Asia,Europe and Middle east and Africa).Most importantly,this study also examines the pre and post strategy of Belt and Road initiative(BRI)in total sample of belt and road countries.The empirical outcomes reveal that the coefficient of aggregate and all other sub-indices of infrastructure improved due to BRI which in turn encourage export in the selected economies.Furthermore,the control variables of exchange rate,per capita GDP,domestic investment and institutional quality have also significant effect on export,which strengthen the role of infrastructure in promoting export in belt & road economies.In 2013,Chinese President announced plans to build a Silk Road Economic Belt and a 21 st Century Maritime Silk Road,which have come to be known as the Belt and Road Initiative(BRI).The BRI is geared towards encouraging greater connectivity,economic flow,the growth of job opportunities,investment,consumption,cultural exchange and the spirit of regional cooperation between Asia,Europe and Africa by creating jointly built trade routes emulating the ancient Silk Road.The colossal scale of the BRI is exemplified by the 4.4 billion people and the cumulative gross domestic product(GDP)of around US$21 trillion that it is set to encompass.Whereas most literature focuses on the potential geostrategic impetus behind the BRI,this study focuses on gathering evidence on the potential impact of improving trade and FDI inflow through infrastructure(i.e.transport,telecommunication,energy and financial sector).This study analysis the pre and post strategy of belt and road initiatives(BRI)empirically,to answer the question that does BRI improved the investment in infrastructure sector which in turn cause for better export and FDI inflow in belt and road countries.To examine the post and pre strategy,we treat the 5-years period 2013 to 2017 as the post-strategy period,and correspondingly the four-years period from 2008 to 2012 as the pre-strategy period and apply system GMM approach to avoid the problem of endogeniety.We excluded Pre-period coefficients from Post period coefficients.The empirical results reveal that due to BRI,investment in infrastructure enhanced which in turn encouraged the exports of belt and road countries because the coefficients of aggregate and all other sub-indices of infrastructure improved in post era,except transport infrastructure.To check the robustness of GMM approach,this study also used 2SLS estimator.The results of 2SLS confirmed the robustness of GMM approach.Beside the main variables,the coefficients of control variables such as,per capita GDP,exchange rate,domestic investment and institutional quality are improved in post strategy era.This research study suggested that both i.e.non-State owned & State owned Chinese organizations make efforts to invest in infrastructure sector(i.e.telecommunication,energy,financial and Transport)in BRI which obviously accelerate trade especially,export in Belt & Road economies.Relatively speaking,Asia observed the most significant destinations where a huge gap of infrastructure-led investment by which trade can boost up.Moreover,the empirical results suggested that in Belt and Road countries aggregate and sub-indices of infrastructure play key role in enhancing the trade.Hence,efficient physical infrastructure arrangements should be the priority for policymakers to ensure more increase in trade especially exports which is most important problem of developing countries like belt and road countries.Also to encourage the positive-effect of infrastructure on export,developing Asian and Middle east and African economies which is part of BRI should expand domestic investment,institutional quality and per capita GDP and diminish the obstacles in the way of investor to invest in these countries including the availability and quality of infrastructure.