Infrastructure, institutional quality, and trade in South Asia: Evaluating the belt and road initiative through generalized synthetic control

Abstract

The Belt and Road Initiative (BRI) is a major infrastructure-led development strategy aimed at enhancing regional connectivity across Asia, Europe, and Africa. This study examines the impact of infrastructure development on trade in five South Asian BRI economies, considering the roles of human capital, institutional quality, GDP per capita, and foreign aid. Using panel data from 2000–2021, the study employs the System Generalized Method of Moments (GMM) and the Generalized Synthetic Control (GSC) approach. The analysis covers both pre-BRI (2000–2012) and post-BRI (2013–2021) periods and evaluates aggregated and disaggregated infrastructure components. The findings indicate that both aggregated and disaggregated infrastructure significantly promote trade in South Asian economies. The GSC results show that BRI participation increased the aggregated infrastructure index by approximately 0.8 standard deviations and raised trade by 12–15% in the treated countries. In addition, human capital, institutional quality, GDP per capita, and foreign aid positively influence trade performance. The pre- and post-BRI analysis further demonstrates that the initiative has strengthened infrastructure development and regional connectivity, contributing to substantial trade growth. Overall, the results highlight the importance of infrastructure investment and complementary institutional and human development factors in maximizing the trade benefits of the BRI.