Economic Impacts of China's Belt and Road Initiative on ASEAN and Malaysia

This paper examines the economic growth impacts of China’s One Belt One Road Initiative (OBOR) on (a) ASEAN at the regional level, (b) Malaysia at the country level, and (c) Sarawak at the state level. We examine the impacts of OBOR via two channels: increases in bilateral trade between China and ASEAN and increases in China’s infrastructural investments in ASEAN. Using an econometric growth model, we find that ASEAN as a whole gains from OBOR. However, the per capita growth benefits differ across the ten ASEAN countries under investigations. Malaysia is reported to be one of the largest beneficiaries of OBOR. In addition to measuring the aggregate benefits accruable, we explore the effects of different types of infrastructure and different types of trade on the ASEAN countries. We find that transport infrastructure is one of the most significant types of physical capital that propels ASEAN’s as well as Malaysia’s economic growth. At the state level, we use Sarawak as our case studies. Given that transport infrastructure is of paramount importance to Malaysia, we identify the role of railway network in the economic transformation of Sarawak. We provide a number of justifications on how railroads can spur the economy of Sarawak and Malaysia.