China’s new comparative advantage of trade with Belt and Road countries: from public security perspective

LI Bing1 YAN Xiaochen1

(1.School of International Trade and Economics, Central University of Finance and Economics)

【Abstract】The Belt and Road Initiative was proposed by Xi Jinping, President of the People’s Republic of China, in 2013. The Belt refers to the countries along the Silk Road Economic Belt, and the Road refers to the 21st Century Maritime Silk Road. These countries are not clearly defined by the Chinese government, but in general, Southeast Asian countries, Central Asian countries, Middle Eastern countries, and some Eastern European countries are included in the Belt and Road Initiatives, which are called Belt and Road countries for short. The Belt and Road Initiative has become crucial, with the advent of the new normal stage of China’s economy and the deepening global trade. Other noteworthy features of the Belt and Road countries are frequent terrorist attacks, which leads to their enormous suffering. However, international media have paid considerable attention to attacks in developed countries, such as the Paris attacks on November 13, 2015 and the explosion attacks in Brussels on March 22, 2016, but little attention to the attacks in developing countries such as the Belt and Road countries. Based on the Global Terrorism Database, from 1984 to2014, the ratio of terrorist attacks in the Belt and Road countries to the global terrorist attacks was 63%, and this ratio reached astounding 83% after the Iraq War. To further explore the effects of terrorist attacks on bilateral trade between China and the Belt and Road countries, we used the gravity model widely applied for study of international trade, along with cross-country panel data, and combined the terrorism indicators into the model. For the first time, we found that China had a peculiar feature compared with other countries, in that China could somehow immunize itself from terrorist attacks when trading with the Belt and Road countries; we called this China’s new comparative advantage in terrorist attacks. Furthermore, we investigated two potential mechanisms behind this comparative advantage. In the first mechanism, we added the interaction terms of the United States and Mexico to compare them with that of China. We found that the interaction term coefficient of the United States was smaller and less significant than that of China, thereby leading to the conclusion that the risk feature existed only in developing countries such as China and Mexico. In addition, we classified terrorist attacks according to their types and targets, and explored China’s different behaviors when confronted with different types of terrorist attacks. The results show that China has a comparative advantage in the explosion attacks and a disadvantage in the kidnapping attacks, and that Chinese civilians take more risks than Chinese officials. In the second mechanism, the non-interference foreign policy, we divided the sample into groups before and after the Iraq War and found that China showed a comparative advantage in terrorist attacks only after the Iraq War. Moreover, we replaced the Belt and Road countries with African countries, Latin American countries, and European OECD countries. Our findings reveal that China did not have a comparative advantage in terrorist attacks when trading with these countries. These findings show not only that countries behave heterogeneously against terrorist attacks during the trading process, but also constructive and far-reaching policy implications. Firstly, the comparative advantage of China in terrorist attacks when trading with Belt and Road countries indicates the realistic foundation of the Belt and Road Initiative. Second, according to the second mechanism, China’s non-interference foreign policy played a vital role in the formation of this comparative advantage, in accordance with the proposal of China’s peaceful development. Finally, the interference foreign policies from the Western countries, particularly the United State, with the slogan “human rights above sovereignty,” incurred revenge in the form of terrorist attacks to some extent, leading to substantial economic losses.

【Keywords】 terrorist attack; trade; Belt and Road;

【Funds】 Key Project of National Social Science Foundation (15ZDA017)

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    Footnote

    [1]. ① Source: Ta Kung Pao (大公报), (2016-4-8).

    [2]. ② Developed countries in Europe refer to the member states of OECD.

    [3]. ③ In dealing with the samples for study of the Iraq War, considering that the Iraq War occurred in 2003, the samples in the year are removed, and the same processing is made in empirical research. Of course, the addition of samples in this year will not have a major impact on the main results.

    [4]. ① Zhang and Zhang (2016) found that the terrorist attacks in the Belt and Road countries were very frequent, and noticed the growing trade between China and these countries, but they neither conducted formal empirical tests on nor provided corresponding explanations of the findings.

    [5]. ①http://www.robertfeenstra.info/data/

    [6]. ② Due to missing values and other reasons, the number of countries actually included in the sample used for empirical regression is 186.

    [7]. ③ Source: National Consortium for the Study of Terrorism and Responses to Terrorism (START), 2016, Global Terrorism Database, Retrieved from https://www.start.umd.edu/gtd

    [8]. ④ Source: http://www.cepii.fr/CEPII/en/welcome.asp

    [9]. ⑤ Source: http://faculty.haas.berkeley.edu/arose/

    [10]. ⑥ The source of currency union is Wikipedia (https://en.wikipedia.org/wiki/Currency_union), and we collate the information in the website and aggregate it into a null variable.

    [11]. ⑦ Since the collectors of original data lost the 1993 data when delivering them, there is no information about the terrorist attacks in 1993 in the Global Terrorism Database, and we have to give up the data in the year in the subsequent model estimation. In the robustness testing, we try using only the data after 1994, and the estimated results see no significant changes.

    [12]. ① Qureshi (2013) explored the spillover effects of military conflicts and found that both internal and international conflicts had significant negative effect on bilateral trade of neighboring countries, even if neighboring countries were not involved in any military conflict.

    [13]. ② The country-pair fixed effect is the most rigorous way to control unobservable factors in the empirical study by existing gravity models. We believe that this control method can help eliminate most biases caused by omitted variables. We also adopt a method of controlling the fixed effects of importing and exporting countries, and the results do not change much.

    [14]. ① In the estimation by the gravity model, it is necessary to add “multilateral resistance” to avoid the estimation bias caused by omitted unobservable variables. The usual practice is to introduce the country-pair fixed effect (Rose & Van Wincoop, 2001).

    [15]. ① When the Belt and Road countries are importing countries, the coefficient of the number of terrorist attacks is not significant, but it can be observed that its t value is still large enough and is negative; besides, because of differences in the scale and scope of terrorist attacks, the number of attacks cannot well reflect the extent of terrorist attacks. Data on fatalities and casualties help overcome the shortcomings and can better portray the extent of terrorist attacks.

    [16]. ② While constructing the indicators of explosion, we also construct other indicators of attacks. In the regression, the indicators of explosion and other attacks are put together in the model for estimation, to avoid the estimation deviation caused by omitted variables, which is applied to the construction of the kidnapping indicators.

    [17]. ① The Islamic State, which has risen in the Middle East in recent years, is an example of anti-Western terrorist organization that crosses existing national borders.

    [18]. ② In order to remove the short-term impact of the Iraq War itself, we remove the 2003 samples.

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This Article

ISSN:0577-9154

CN: 11-1081/F

Vol 53, No. 01, Pages 183-197

January 2018

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Article Outline

Abstract

  • 1 Introduction
  • 2 Literature review and theoretical analysis
  • 3 Data source and empirical strategy
  • 4 Empirical result and mechanism test
  • 5 Conclusion and discussion
  • Footnote

    References