Quantifying Caucasian Gains from BIS Trade
Bottlenecks at major ports and other shocks to global shipping are drawing new attention to other routes to get Chinese goods to European markets.
The Trans-Caspian international transport route, known as the Middle Corridor, had been under development as part of Beijing’s Belt and Road Initiative (BRI) for several years before the coronavirus linked supply chains in knots. The 6,500 kilometer road, rail and port network that crosses Kazakhstan, the Caspian Sea, Azerbaijan and Georgia, then Turkey and / or the Black Sea aims to reduce shipping times by 60 days by sea to fifteen days. It is backed by billions of dollars in loans and grants from the Chinese government.
A recent economic impact assessment by the ADB Institute, the development bank’s think tank, examines what countries along the way have to gain – and not.
Using historical trade and tariff data, researchers Xinmeng Li, Kailai Wang and Zhenhua Chen calculate the potential effect that the intermediate corridor would have on real GDP growth (growth after accounting for inflation) in the regions. transit country.
They assume that investments will reduce the cost of doing business. Then, they simulate five scenarios describing different volumes of investment in variable subsidies in a post-COVID world, different investment objectives (sea, rail, road, airports), types of trade (export and import) and levels of confidence. investors.
Trade has winners and losers, so lowering barriers has costs. An agricultural country like Georgia, for example, risks losing local customers as cheaper food from abroad competes for market share (assuming tariffs remain unchanged); at the same time, Georgian farmers will benefit from new markets in Europe.
Overall, in their interim scenario, Li, Wang, and Chen calculate that Georgia is expected to earn 0.68% of GDP per year by facilitating trade.
By disaggregating the types of infrastructure investment, the authors then show that the Georgian economy would be better served by the modernization of its rail networks, followed by sea ports (which makes the fight for the Anaklia port project in even more painful breakeven), at 0.242 and 0.209. percentage growth respectively. Road improvements would contribute 0.107 percent.
These numbers seem low, but accumulating over many years could significantly increase production.
For Azerbaijan and Kazakhstan, however, the figures are much lower. Both would be better served by investments in air transport, which, in this intermediate scenario, add only 0.028 and 0.069% to GDP respectively. Overall, in all of the Middle Corridor countries, investments in airports and railways âhave greater positive impacts on GDP growth than investments in port and road infrastructureâ.
Li, Wang and Chen stress that infrastructure investments are necessary whether or not they are part of the BRI. Not only will growth suffer without modernization, but regional trade – between Kazakhstan and Georgia, for example – is a laudable goal in itself, perhaps doing more to boost local economies than the search for distant markets in Europe and Europe. Asia.
The paper does not deal with Chinese debt or financing, but it does offer a way for Middle Corridor countries to measure the benefits of new infrastructure against expected future growth. It is important that countries like Georgia and Azerbaijan conduct their own economic analyzes, say the authors, because when Chinese project developers call, they “seem to overestimate the positive externalities and underestimate the negative ones.”
âCountries should carefully consider the costs and benefits, as the results suggest that [these investments] may not be effective in some countries.
From China’s perspective, one argument for the intermediate corridor is diversification, to avoid relying on the more direct route to Europe through Russia, write Tristan Kenderdine and PÃ©ter Bucsky in another article in the ADB Institute released earlier this year.
Efforts to sell the project as a way to encourage exports from the region do not hold water, they note. Chinese subsidies “on their own will not facilitate intra-regional trade between intermediate corridor countries or extra-regional trade from the region to the PRC or Europe.”
âThe statistics do not justify the PRC hype,â they write. The intermediate corridor crosses too many borders and water bodies to be commercially viable.
For countries like Georgia and Azerbaijan, borrowing for giant infrastructure is a gamble. Kenderdine and Bucsky argue that they would be better served by liberalizing and integrating their economies locally with, for example, a regional trade zone, possibly linking the Caucasus and Central Asia.
Until then, they write, “there remains a gap between expectations and reality”.