Is China’s Belt and Road Initiative a Zero-Sum Game?

Foreign infrastructure investments tend to increase cross-border economic activity between investor and recipient countries. We question whether such an increase comes at the expense of trade with third-party countries (a “zero-sum hypothesis”), or whether the infrastructure investment leads to an increase in overall trade (a “lifting all boats hypothesis”). Our investigation is within the context of the Chinese Belt and Road Initiative (BRI). In a sample spanning 2013 to 2018 and covering 1,135 BRI projects in 110 countries, we find strong evidence in support of the zero-sum hypothesis. The increase in cross-border economic activity (imports, exports, and M&A flows) with China is accompanied by a decrease in activity with third party countries. Further, we show that, following BRI investments, BRI countries trade more with other countries that are politically aligned with China, but less with countries that have recently been visited by the Dalai Lama. Overall, our evidence points to both a “zero-sum” nature of the impact of infrastructure on cross-border trade, and to the existence of a BRI “network” that favors countries that are politically aligned with China