Over the past two decades, through the Belt and Road Initiative (BRI), China has invested more than $150 billion in transportation infrastructure worldwide. Are these investments economically justified for China? What are their impacts on host and third countries, and what are the trade infrastructure responses that the U.S. should have? First, using a standard trade model, we demonstrate an international bias of trade infrastructure: due to terms-of-trade effects, foreign countries have stronger incentives than host countries to invest in trade infrastructure. In work in progress we develop a quantitative trade model of the world economy with a global transport network through land, sea, and air. We combine the model with detailed data on China's BRI investments and port-to-port shipments. Then, we assess the optimality of observed BRI investments and study their consequences across the world.

Edouard Schaal is an ICREA research professor at the Centre de Recerca en Economia Internacional (CREI) in Barcelona, Adjunct Professor at Universitat Pompeu Fabra (UPF) and Associate Research Professor at the Barcelona School of Economics (BSE). He is also a Research affiliate of the Center for Economic Policy Research (CEPR). He is Associate Editor at the Economic Journal and member of the editorial board of the Review of Economic Studies. He was formerly Editor at the Review of Economic Dynamics. He has previously held research and academic positions at New York University and the United States Federal Reserve Bank of Minneapolis. Edouard Schaal received his PhD in Economics from Princeton University in 2011.