China’s Belt and Road Initiative (BRI) and Its Impact on Trade: Evidence from the MENA and the EU Mediterranean Region

There is growing concern about the impact of the Belt and Road Initiative (BRI) on trade, investment and infrastructure. However, little is known about its specific impact on China’s bilateral trade relations with MENA and EU Mediterranean economies. This study explores the impact of the BRI on the dynamics of trade in MENA and Mediterranean countries through analyzing the trade potential in terms of export, import and total trade before and after the implementation of the BRI. Using an augmented gravity model and panel data from 2003 to 2020 we find that the BRI has increased China’s product export potential significantly to participating countries with the greatest impact on Gulf energy suppliers (Iraq, Oman and Saudi Arabia). Increased trade liberalization significantly enhanced bilateral trade volumes, with stronger effects on exports than on imports while we find no evidence of more balanced trade of the countries more affected by a trade deficit. These findings provide crucial insights for policy makers in search of strengthening trade cooperation along the BRI strategy and stress the role to be played by targeted import diversification strategies, improved capacity-building for smaller economies, and mechanisms to convert infrastructure investments into balanced trade relationships as necessary policies to support the future implementation of the BRI.