China’s public international investment: A strategic-trade-policy perspective

Initiatives such as the Belt and Road initiative reduce trade costs, increase export firms’ profits and stimulate their activities in R&D contests. The resulting strategic-trade policy equilibria tend to be asymmetric. One country earns leadership in the markets for exports to the rest of the world. Factors that are conducive for a country to gain the role of major innovator and exporter nation are: (1) whether a nation follows a ‘national champions’ policy compared to a rigorous national anti-trust policy, (2) whether a nation has a large pre-existing export sector, (3) whether the government places a high welfare weight on the profits of the firms in its country, and (4) whether the government has low opportunity costs of such investment policies. Piecemeal evidence suggests that, compared to the US, China has the advantages in all these four dimensions.