Convergence effect of the Belt and Road Initiative on income disparity: evidence from China

Regional income disparity is a significant concern in China, with the Gini coefficient consistently exceeding cautionary levels. This widening gap negatively impacts social stability, economic growth (hindering the overcoming of the "middle-income trap"), and regional innovation. Existing research has focused on factor endowment, market integration, government factors, and knowledge spillover effects to explain and address this issue. However, the impact of the Belt and Road Initiative (BRI), a major policy innovation promoting global economic welfare, on regional income disparity remains understudied. This paper addresses this gap by investigating four key questions: (1) How does the BRI affect regional income disparities? (2) Does the BRI facilitate the convergence of inter-city income disparities? (3) What is the mechanism through which the BRI contributes to income disparity convergence (if any)? (4) Does regional heterogeneity exist in the BRI's impact on income disparity convergence among different provinces in China? The authors argue that the BRI, as a national-level public policy, influences regional income disparity through its impact on economic geography. The BRI's promotion of infrastructure connectivity and trade openness, along with its contribution to industrial structure transformation, are posited as key mechanisms. The study's contributions lie in focusing on the intra-country impact of the BRI on income disparity, providing empirical support for the intersection of public policy and spatial geography analysis, and highlighting regional heterogeneity in the BRI's effects.

The existing literature on regional income disparity in China highlights several contributing factors and potential solutions. Factor endowment theory emphasizes the role of physical and human capital in reducing inequality. Market integration theory suggests that overcoming market segmentation through improved infrastructure and reduced local protectionism is crucial. Government factor theory points to both the potential benefits of increased public spending on education and social security, and the importance of dismantling administrative monopolies. Finally, the knowledge spillover effect theory stresses the role of interregional innovation collaboration in promoting convergence. While extensive research exists on the BRI's international economic effects (e.g., impact on trade, foreign direct investment), few studies have focused on its domestic, regional implications, specifically its impact on income distribution within China. This paper aims to fill this research gap.

This study employs panel data from 269 cities across 26 provinces in China from 2002 to 2017. Four municipalities directly under central government and regions with incomplete data were excluded. The data primarily come from the *China City Statistical Yearbook*. The dependent variables are regional income disparity, measured using both the coefficient of variation (CV) and the Gini coefficient. The core independent variable is a dummy variable representing the BRI's implementation (treatment group: provinces significantly affected by BRI; control group: others). The study uses a difference-in-differences (DID) model, considering the BRI's implementation year (2015) as the policy shock. To account for potential endogeneity issues due to the non-random selection of BRI provinces, the study employs an instrumental variable (IV) approach using provinces along the ancient Silk Road as instruments. The validity of the IV approach is assessed through the first-stage regression and an F-statistic test. Robustness checks involve using the Gini coefficient as an alternative dependent variable, employing a triple difference model to address non-parallel trends, and utilizing propensity score matching. Finally, a mechanism test investigates the mediating effects of trade openness (measured using the ratio of foreign direct investment to GDP) and industrial structure transformation (measured using the proportion of tertiary industry output value to secondary industry output value). A subsample analysis examines regional heterogeneity in the BRI's impact across East, Central, and West China.

The DID analysis, before and after addressing endogeneity issues, consistently demonstrates a significant negative effect of the BRI on inter-city income disparity (p<0.001), supporting Hypothesis 1. Both OLS and FE models show that the BRI significantly reduced income inequality. The dynamic effect analysis reveals a continuous and significant reduction in income disparity in the years following the BRI's implementation (significant at 1% and 5% levels for 2016 and 2017 respectively). Robustness checks using alternative dependent variables (Gini coefficient), a triple difference model, and propensity score matching consistently support these findings. The mechanism test confirms that both trade opening and industrial structure transformation significantly mediate the BRI's impact on income disparity convergence, supporting Hypotheses 2 and 3. Subsample analysis reveals significant regional heterogeneity. While the BRI's effect is insignificant in East China, it shows a highly significant negative impact in Central and West China, indicating a stronger convergence effect in less developed regions.

The study's findings strongly support the hypothesis that the BRI contributes to the convergence of regional income disparity in China. The consistent results across various econometric models and robustness checks enhance the reliability of this conclusion. The identification of trade opening and industrial structure transformation as key mediating mechanisms provides valuable insights into the BRI's impact. The observed regional heterogeneity highlights the importance of considering contextual factors and suggests that the BRI's effects may vary across regions with different initial conditions and policy environments. These findings offer valuable policy implications, emphasizing the need for tailored strategies to leverage the BRI's potential for reducing income inequality across diverse regions.

This study provides robust evidence of the BRI's positive impact on reducing regional income disparity in China, particularly in Central and West China. The mechanisms identified—trade opening and industrial structure transformation—provide crucial insights for policy design. Future research should explore the BRI's long-term effects, consider the impact of the COVID-19 pandemic, and expand the analysis to include other BRI participant countries to enhance the generalizability of the findings. Policy recommendations include integrating the BRI with regional development strategies, promoting balanced trade openness, aligning industrial structure transformation with BRI initiatives, and addressing the heterogeneity in the BRI's effects across regions.

While the study utilizes a comprehensive dataset and employs rigorous econometric techniques, some limitations should be acknowledged. The focus on China alone limits the generalizability of the findings. The study's time frame does not capture the long-term consequences of the BRI, nor does it fully account for the impact of unforeseen events such as the COVID-19 pandemic. Additionally, the choice of instrumental variables, while justified, could still introduce some degree of uncertainty into the results. Future research could address these limitations by extending the study's geographical and temporal scope and exploring alternative methodological approaches.