LONDON – Later this month, Chinese President Xi Jinping will host a summit for many of the leaders of the 65 countries engaged in his “one belt, one road” (OBOR) initiative, a pioneering program that will channel billions of investment dollars toward infrastructure projects across Asia, Africa, and Europe. Despite a strong economic case for the project, reactions have been mixed.
The main impulse driving the OBOR initiative is physical connectivity: efficient infrastructure enhances productivity, fosters investment, and lowers the costs of trade. With effective channels for the exchange of goods and well-connected information networks, growth accelerates, economic opportunity increases, and inequality narrows.
The good news is that such infrastructure can be built in an efficient and cost-effective manner. The key is cooperative efforts that exploit each country’s respective comparative advantage, be it capital, technological know-how, logistical or construction capabilities, raw materials, or even industrial goods. Such an approach can jumpstart development in low-income countries, and help emerging economies bypass the dreaded middle-income trap.
But making physical connectivity work requires not only massive amounts of funding; policy coordination and regulatory harmonization are necessary as well. In the short term, infrastructure investment can be impeded by significant political, sovereign, and financial risks.
– Project Syndicate