China-proposed Belt and Road initiative that pushes for improved transport infrastructure is good news for Europe as far as trade creation is concerned, says a recent report issued by the Brussels-based think tank Bruegel.
"We estimate how much trade might be created among Belt and Road countries as a consequence of the reduction in transportation costs (both railway and maritime) and find that European Union (EU) countries, especially landlocked countries, should benefit considerably," the report adds.
The Belt and Road initiative aims to stimulate economic development over a vast area covering sub-regions in Asia, Europe and Africa. Over 70 countries and international organizations have taken part in the Belt and Road initiative.
One of the initiative's key objectives is to ease bottlenecks for cross-border trade, in particular through transport infrastructure, which should reduce the cost of transportation, thus stimulating trade between China and these countries, the report notes.
"The same effect should be expected for the other end of the road -- the EU -- because cheaper transportation should also foster its trade with other Belt and Road countries, as well as with China," the report says.
To prove the estimation, authors of the report firstly accessed of the impact of transportation costs on trade. They found that transportation costs are statistically and economically significant in fostering international trade.
"We find that a 10 percent reduction in railway, air and maritime costs increases trade by 2 percent, 5.5 percent and 1.1 percent respectively," the report says.
Secondly, the authors tried to figure out how much transportation costs will be reduced as a result of the improvement in infrastructure.
In this regard, information on the few finalized projects under the Belt and Road initiative has offered a hint of the potential. Yuxinou railway line, which starts in Chongqing and ends in Duisburg, Germany, has been reported a reduction in transportation cost by 50 percent in 2015, according to the report.
Comparing the impact on trade by regions, the report says the EU will be the biggest winner from the Belt and Road initiative, with trade rising by more than 6 percent.
An infrastructure-centered Belt and Road initiative should be very encouraging for the EU, the report concludes.
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