General Equilibrium Trade Policy Analysis among One Belt One Road Nations Using Structural Gravity Framework
| Published date | 01 November 2023 |
| DOI | http://doi.org/10.1177/00157325221120712 |
| Author | Hajra Manzoor,Parvez Ahmad Mir |
| Date | 01 November 2023 |
| Subject Matter | Articles |
General Equilibrium
Trade Policy Analysis
among One Belt One
Road Nations Using
Structural Gravity
Framework
Hajra Manzoor1 and Parvez Ahmad Mir1
Abstract
Currently, the world is witnessing one of China’s most significant economic inte-
gration initiatives–One Belt One Road (OBOR). This article aims to evaluate the
general equilibrium (GE) effects of this initiative on member nations. The struc-
tural gravity model is used in this study to perform the counterfactual analysis
while analysing the conditional and general equilibrium effects of the trade policy
of border removal on international trade flow among the member countries. The
estimates suggest varied strade gains for the member countries in response to
the trade policy changes. Most Asian countries are witnessing an increase in pro-
ducers’ prices and therefore gaining more from globalisation. We also deduced
that the member countries had reached half of their potential to trade gains, with
most developing countries witnessing a decrease in multilateral trade resistance
(MTR). The findings of this study implicate a debate for the policymakers over
continuing support for further trade integration.
JEL Codes: C21, F15, F17
Keywords
China, One Belt One Road, general equilibrium effects, structural gravity model,
international trade
Article
Foreign Trade Review
58(4) 484–503, 2023
© 2022 Indian Institute of
Foreign Trade
Article reuse guidelines:
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DOI: 10.1177/00157325221120712
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1 Department of Management Studies, Islamic University of Science and Technology, Awantipora,
Jammu and Kashmir, India
Corresponding author:
Hajra Manzoor, Department of Management Studies, Islamic University of Science and Technology,
Awantipora, Jammu and Kashmir 192122, India.
E-mail: hajra.manzoor@islamicuniversity.edu.in
Manzoor and Mir 485
Introduction
The impact of economic integration among countries has widely been accepted
to impact their development and economic growth positively. The economic
implications of such trade policies differ across the individual economies
(Baier et al., 2015). This variation among the trade partners in response to
trade policies is mainly due to different economic backgrounds (Baier et al.,
2017). The evidence of trade integration promoting the welfare of the econo-
mies highlights that there needs to be continuous support for economic inte-
gration among the various countries (Margalit, 2012). The trade policies that
involve removing barriers to international trade help in the economic growth
of a country through improved infrastructure and better productivity (Ansari
& Khan, 2011). The barriers limit the abilities of various economies to reap
the benefits of integration and globalisation (Cole & Tenreyo, 2021). The eco-
nomic integration initiative of China, One Belt One Road (OBOR), aims to
change the pattern of international trade by building and improving infrastruc-
ture, reducing trade costs and aiding countries that were unable to reap the
benefits of globalisation in the past (Enderwick, 2018). In this regard, this
article utilises the method counterfactual analysis using the gravity model
developed by Anderson et al. (2018) to analyse the effect of economic integra-
tion among the OBOR countries. This approach solves the limitations of pre-
vious studies as we analyse general equilibrium effects in response to the
counterfactual scenario to quantify the integration impact of OBOR.
Since the OBOR project is still undergoing and is yet to be completed, the
exact trade volume via this route is not present in the literature. However, some
studies have proposed an estimate of the trade improvement and welfare effects of
the OBOR. Villafuerte et al. (2016) proposed that improving the network of trans-
port and facilitation of trade along the OBOR route may boost GDP growth by
0.1–0.7 percentage points in West, Central and South Asia. It may also result in a
rise in welfare spending from 6 billion USD to 100 billion USD. The aggregate
exports of nations via the OBOR route could rise from 5 billion USD to 135 bil-
lion USD. The OBOR transportation projects may cut travel and logistics alone
by 12 per cent, boost global commerce by 2.7–9.7 per cent, increase income by up
to 3.4 per cent and bring around 7.6 million people out of extreme poverty
(Maliszewska & van der Mensbrugghe, 2019). Along similar lines, the present
study aims to highlight the varied welfare effects that each participating country
can have by joining the OBOR initiative.
This article aims to discuss the trade policy implication on the trade flow among
72 OBOR countries (Business & Outlook, 2018) from 1996 to 2016 using the struc-
tural gravity model in a general equilibrium environment. The remainder of this
article is organised as follows. The second section reviews the literature; The third
section presents the methodology adopted. The database and its sources are dis-
cussed in this section, followed by results and analysis in the fourth section. The
fifth section includes the discussion and future scope.
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