Quantifying Financing Needs in the Belt and Road Countries

ABSTRACT

This paper provides a thorough analysis to quantify the financing needs in the Belt and Road countries during 2009 and 2014. By examining financial constraints using financial data of firms in the Belt and Road countries, this study constructs a Financing Needs Index for Belt and Road countries and highlights the characteristics of financing needs across 36 countries and 6 years. By further incorporating information from World Bank Enterprise Surveys, this paper builds an Augmented Financing Needs Index for 56 Belt and Road countries. The findings of this paper provide important policy implications by showing that countries can improve their financial liberalization and institutional environment to address the financing needs of their indigenous firms and thus achieve economic growth.

KEY WORDS:

• Belt and road initiative
• China
• financing needs

JEL:

• F34
• H63
• H83

Acknowledgments

We thank the financial support of the Hong Kong Institute for Monetary Research. Zhao wants to thank the following grant for purchasing the data: Development Program of Ministry of Education for Changjiang Scholars and Innovative Teams (IRT_17R27) – “China-ASEAN Regional Development Team”. We also thank Adrian Lam, Sicong Wang and Lai Wei for excellent research assistance.

Supplementary Material

Supplemental data for this article can be accessed here.

Notes

1. Regressing the investment-cash flow sensitivity coefficient on that of the cash flow sensitivity of cash in a no-constant regression, we obtain a significant coefficient of 0.48, which indicates although the two sensitivities are highly correlated, they still offer different dimensions of constraint information.

2. The region level Financing Needs Index is constructed using the same method as in section 4.1. For brevity reasons, we do not report the regression results of both Investment-cash flow sensitivity and cash flow sensitivity of cash for region level in the main text.

Additional information

Funding

This work was supported by the Hong Kong Institute for Monetary Research.