The Impact of Belt and Road Initiative on Regional Financial Integration – Empirical Evidence from Bond and Money Markets in Belt and Road Countries

Abstract

Belt and Road Initiative (BRI) proposed in 2013 has received wide research attention in recent years. However, rigorous quantitative studies on BRI’s impact on regional financial integration are scarce. This paper contributes to filling this research gap by adopting Adam et al. beta convergence and sigma convergence method. Two processes of financial integration are of primarily concern i.e. intraregional integration and the integration with the Chinese markets. Four regions are specifically investigated: Central and East Europe, Southeast Asia, Common Wealth Independent States and Africa. The findings indicate that: (1) BRI mainly influences the tendency of financial integration while the degree of integration was merely influenced. (2) Integration process in bond and money markets behave differently toward BRI with the tendency of bond market integration being stronger. (3) Four regions exhibited ununiformed response to BRI in terms of financial integration. This paper also discussed BRI and the values it brings to incorporate financial integration and sustainable development practices to the BRI regions. Examples of BRI projects prove the importance of BRI and regional sustainable economic development. To enhance the sustainability of BRI projects, this paper recommends further studies to examine the dynamics and interlinked relationships of the BRI regions.

Keywords:

• Belt and road;
• financial integration;
• beta convergence;
• sigma convergence;
• sustainability