Evaluating India’s FDI as a nonparticipant in the Belt and Road Initiative: synthetic control method analysis
| Date | 11 November 2024 |
| Pages | 1-23 |
| DOI | https://doi.org/10.1108/JCEFTS-03-2024-0020 |
| Published date | 11 November 2024 |
| Author | Eman Elish,Hossameldin Ahmed |
Evaluating India’s FDI as a
nonparticipant in the Belt and
Road Initiative: synthetic control
method analysis
Eman Elish and Hossameldin Ahmed
Department of Economics, The British University in Egypt, Cairo, Egypt
Abstract
Purpose –The Belt and Road Initiative (BRI) was launched in 2013 and implemented the followingyear,
marking 11 years since its inception. During this time, numerous research papers have been published that
analyse the initiative’sobjectives, targets and potential outcomes. Thisstudy aims to assess India’s resilience
in joining the BRI byexamining its net foreign direct investment (FDI) comparedto a counterfactual scenario
involvingparticipation in the initiative.
Design/methodology/approach –The synthetic control method (SCM) will be used using a panel of
27 countriesfrom 1990 to 2021.
Findings –The findings reveal that India’s FDI trajectory has decreased comparedto that of synthetic India
constructedfrom BRI member countries.
Research limitations/implications –This research outcome can assist India and other nations that are
contemplatingjoining the BRI to systematicallyevaluate the potentialpolitical and economic risksand benefits
associated with the initiative. This evaluation can guide individualdecision-making processes regarding the
BRI on a case-by-casebasis and with other outcomesthat are deemed viable to each country.
Originality/value –This research is distinct from other studies because it uses a novel SCM analysis,
which is a quasi-experimental technique that assesses actual outcomes rather than predicting them, as in
conventional regression models. In addition, previous research has primarily focused on the political
aspects of the initiative; however this study focuses on the economic aspect of the BRI by evaluating its
impact on FDI.
Keywords Belt and Road Initiative, Synthetic control method, Foreign direct investment
Paper type Research paper
1. Introduction
The Belt and Road Initiative (BRI) was initially proposed by Chinese President Xi Jinping
during his official visits to Kazakhstan in September and Indonesia in October 2013. The
primary objective of the BRI is to establish two significant infrastructure and transportation
projects: The Silk Road Economic Belt and the 21st-century Maritime Silk Road. The Silk
Road Economic Belt encompasses China, Central Asia, South Asia and Europe. The 21st-
century Maritime Silk Road connectsChina with Southeast Asia, the Gulf, Eastand North
Africa and Europe. TheBRI also aimed to develop six major economic corridorsfrom China
to Mongolia and Russia, European countries,Central and West Asia, Pakistan, India and the
Indochina region [Asian DevelopmentBank (ADB), 2017]. The Organisation for Economic
Cooperation and Development (OECD)Business and Finance Outlook report highlighted
the widening global infrastructureinvestment gap and suggested that the BRI could promote
Journal of
Chinese
Economic and
Foreign Trade
Studies
1
Received3March202 4
Revised29 A pril2024
18 July 2024
Accepted18 October 2024
Journalof Chinese Economicand
ForeignTrade Studies
Vol.18 No. 1, 2025
pp. 1-23
© Emerald Publishing Limited
1754-4408
DOI 10.1108/JCEFTS-03-2024-0020
The current issue and full text archive of this journal is available on Emerald Insight at:
https://www.emerald.com/insight/1754-4408.htm
investment in the transportation, energy, water and telecommunications sectors, thereby
bridging this significantgap (OECD, 2018).
Numerous researchers argue that the construction of large-scale infrastructure projects
has a substantial impact on increasing FDI flows (Bellak et al.,2009;Shahbaz et al., 2021;
Bakar et al., 2012;Du and Zhang, 2018). Thus, this study assumes that countries that have
joined the initiative enjoy higher net FDI flowsthan India. Therefore, this study measures the
potential impact of India’snet FDI flows, which it would have gained had it joined the BRI in
2014.
A common topic in empirical studies is the ongoing debate on the BRI initiative and its
underlying motivations. According to Portyakov (2020) and Wang and Liu (2023), one
argument in favour of the initiative is that it allows China and other developing countries to
reduce their reliance on the US market and establish independence from this strategic trade
partnership by diversifying theireconomic ties to other markets. In addition, these countries
can secure access to natural and energyresources by investing in sectors in Central Asia and
Africa. Casas-Klettand Li (2022) also argued that China’s motivation for the BRI initiativeis
to promote outward FDI and create job opportunities overseas in response to China’s
economic slowdown. They suggested that the initiative may involve plans to establish
currency zones in Central and SoutheastAsian countries.
The projected consequences for nations in the BRI are subject to intense debate, particularly
in India. While some researchers contend that India can derive considerable economic benefits
from the initiative (Yuwen, 2022), others emphasise that the potential political risks far
outweigh any economic gains, particularly in the China–Pakistan corridor (Sachdeva, 2018;
Uberoi, 2016;Manzoor and Mir, 2022).
This study addressed the lack of research on the economic outcomes of India’s
participation in the BRI. While most empirical studies have focused onpredicting the
potential political outcomes of India’s decision to join the BRI, this study examines the
economic impact of the initiative using the new synthetic control method (SCM) of impact
evaluation after 11 yearsofeffective implementation and measuresthe impact of the BRI on
India’s economyrather than simply estimating it. To achievethis, SCM was used, which has
not been employed in previous research on this topic. The findings of this study will be of
interest to policymakers, industry experts and academics who wish to assess the impact of
infrastructure-led economic integration cooperation on foreign direct investment (FDI).
Furthermore, the study shedslight on the possibility of the Indian Government reconsidering
its stance on India–China collaborationand joining the BRI to take advantage of the benefits
of participating in this economic corridor.
SCM used in this study was originally introduced by Abadie and Gardeazabal (2003).
India was selected as a non-member of the BRI in 2014, and it represented the treated unit.
The selected control unit is from a group of countriesthat mimic India, to which the net FDI
flow is compared.
The key findings revealed that India, in the post-treatment period before joining the BRI
in 2014, followed the same trajectory as the other member countries, with a slight
deterioration as the trajectory moved closerto 2014. After one year of treatment, India’s net
FDI fell significantly compared to that of other countries. This finding shows India’s
potential to promote net FDI as a determinant of its political decision to join this initiative.
The in-time and in-place placeboexaminations confirmed the robustness of these results.
The structure of the paper is outlined as follows: First, an introduction is provided,
followed by Section 2 that delves into thetheoretical and empirical perspectives on the topic
and presents data analysis to support these views. Section3explains the general framework
of SCM and its application in this study. Section 4 presents the results of themodel including
JCEFTS
18,1
2
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