_2. THE BELT AND ROAD INITIATIVE_ ridors, shippers, therefore, have to use the road network to reach a main transport hub, change mode in order to benefit from the rail corridors. While trade frictions do not apply for transport costs within countries, they add up when using cross-continental corridors, especially for land-locked economies such as Central Asian countries<sup>4</sup> .

# **2.2 Aggregate trends in Central Asia**

**All roads lead to Russia** The Soviet period has shaped the patterns of trade and transport networks in Central Asian countries. Most current infrastructure was built during the Soviet period, and had been organized in a network centered on Russia. Production was divided across countries in the USSR according to their own comparative advantage. The whole transport network set up in the 20th century was designed to connect periphery countries to Russia.<sup>5</sup> While Russia remains an important trade partner, Central Asian countries are looking for diversifying their horizons given their central location. In this context, the BRI is an opportunity to open new routes, towards China, South Asia, as well as the Middle East and Africa. Central Asian countries are landlocked, hence the importance for them to be well connected.

**External and internal integration** The BRI will reduce transport costs through a mix of "hard" and "soft" infrastructure projects. Major infrastructure projects first aim at rehabilitating major corridors and building the missing links in the transport network in order to increase the number of routes to access ports and international gateways. These projects will affect both the absolute and relative connectivity of countries with respect to each other and the absolute and relative connectivity of provinces within countries with respect to each other. This paper focuses on the economic impacts of infrastructure projects at the district level.

**Export potential for Central Asian countries** In Soviet times, the Central Asian republics were interlinked within the centrally managed economic system of the USSR. Each of these republics specialized in producing a specific agricultural commodity according to its endowments. For example, Uzbekistan specialized in producing cotton, while Kazakhstan was the breadbasket of the region.<sup>6</sup> Central Asian agriculture is sharply differentiated by subregion. Geography

> 4More details on the BRI database and cross border times are provided in Annex B.

> 5Kazakhstan was producing and exporting commodities and wheat. During the American Civil War, it became difficult for Russia to import cotton from the United States. Uzbekistan, which had recently been absorbed into the Russian empire, was then chosen to become the main producer and supplier of cotton. The whole transport network set up in the 20th century was designed to connect periphery countries to Russia, with railway lines in Central Asia mostly connecting the capitals with Russia.

> 6After their independence in 1991, Central Asian countries were faced with a disruption of the earlier trade arrangements and economic linkages for production and distribution of farm products. In addition the quantity and quality of the production as well as the natural resources have been degrading as a result of the heavy emphasis put by the Soviet system on production instead of production efficiency. The transition in agriculture from a central command system to market-driven mechanisms has been slow.

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