ABSTRACT
Based on the theory of optimal currency area (OCA), we calculate the OCA index between China and the OBOR partners with the expressed objective of identifying which partners exhibit monetary and financial compatibilities, and hence present the best potential in terms of cost and benefits. Our findings suggest that among South East Asia region, Malaysia exhibits the highest compatibility and profit potential, followed by Thailand and Vietnam. For the East European area, Poland and Croatia show the best potential in terms of monetary and financial cooperation; with the Czech Republic as close third. Based on our computation, currently Central Asia and the Middle East do not possess the condition or potential for beneficial financial and monetary collaboration.
Notes
1. Chiang, Hou, and Tsai (Citation2018) found significant changes of local government behavior regarding fiscal incentives and land financing after Xi took office.
2. The problem in Sri Lanka is an example of such risk. The incoming government refused to accept the legality of the contracts established bride the previous leadership, and hence essentially defaulted on the liability.
3. We thank the participants of the ”International Trade and Policy Coordination between China and the One Belt One Road Countries” session at the Western Economic Association International’s 2018 Annual Conference in Vancouver, British Columbia, Canada, June 27, 2018.
4. If the variables’ coefficients are significant then we take this strong support of the empirical implications of the theory of optimum currency areas (Bayoumi and Eichengreen Citation1997).
6. We collected data on 46 of the total 66 OBOR countries. As the analysis is based on calculated differences between two countries, we generate a total of 45 samples in the empirical analysis.
7. As the trade between Philippines and Myanmar is missing, thus the sample size is 119, rather than 120.
8. The only significant exception is Laos where the OCA index rose in the post recovery.
9. Some countries still have not established a stock market, while some have missing data.
10. It is the firm belief of the authors if the state of California ever goes ahead with its bullet train project between San Francisco and Los Angeles, it is most probably going to be under a similar arrangement with China.
11. Out of the total 66 OBOR countries, we have missing data on 20 countries, including Iraq, Maldives, Bhutan, Georgia, Azerbaijan, Armenia, Moldova, Estonia, Latvia, Slovakia, Slovenia, Bosnia and Herzegovina, Montenegro, Serbia, and Macedonia.