Riding the Wave of the National Strategy: The Effect of China’s Belt and Road Initiative on Chinese Firms’ Performance

This study investigates the effect of participation in China's Belt and Road Initiative (BRI) on the performance of Chinese multinational firms. We posit that BRI involvement can enhance firm performance by lowering cross-border transaction costs and facilitating access to policy-based financing. However, considerable government intervention in the business sector might prompt firms to engage with the BRI more for political reasons, potentially compromising the benefits of market dynamics and resulting in diminished firm performance. Taking advantage of foreign countries' staggered participation in BRI, our empirical analysis reveals a substantial performance boost for Chinese multinational firms after the country they operate in joined the initiative. Consistent with our argument, this performance enhancement is larger for firms facing high ex-ante financial constraints, operating in countries with stronger commitment to the initiative, or operating in countries with higher business-related uncertainties before joining the BRI. We provide additional evidence that, when firms do not profit from BRI participation as much, they obtain more political benefits from the Chinese government. Finally, we test two competing views on how Chinese firms profit from BRI participation- through releasing their excess domestic capacity or via improvements in technological innovation through newly established linkages with Europe. Our evidence supports the former view. The findings of this study contribute to the empirical literature on the impacts of BRI implementation, as well as the broader political economy literature, by documenting how home-government intervention can help overcome international trading obstacles and lead to varying economic outcomes.