Results

How the Belt and the Road Are Related Economically and Policy Implications

Journal: Maritime Policy & Management

Abstract:

This paper develops an analytical model allowing one to better understand the relationship between the ‘Belt’ and the ‘Road’ in China’s Belt and Road Initiative (BRI). Firstly, we establish the link between the minimum subsidies received by the rail operators from the Chinese governments and the market conditions in the maritime sector. Then, we characterize the relationship between the new rail and the existing port. We show that the minimum subsidies are influenced by the external shipping demand and the shipping freight rate. Furthermore, the local economy will benefit from the BRI if the firm providing the services via rail can compete with the operator of the maritime routes in the future. Specifically, our analysis shows that competition will improve the service quality by reducing the delay costs, the transportation costs, and the shipping price and time, and that the magnitude of the welfare gain will mainly depend on the shippers’ sensitivity to time and price. The policy and economic implications of separate and joint management of the port and rail facilities are discussed.