_3. A MODEL OF STRUCTURAL CHANGE AND INTEGRATION_

**Tranport times** Transport times include three components: (i) the time to reach a domestic hub using the road network, (ii) the time from this domestic hub to reach a main gateway using international corridors, and (iii) the time to cross borders between the domestic hub and the gateway using the best transport route. For each location, shippers first choose the optimal domestic hub that minimizes their transport time to reach gateways. Each distric location is proxied by its geographic centroid. Using geo-referenced data software and open data for transport networks (OSM road networks), times to reach each possible transport hub on main rail corridors through the optimal path, measured as the path that minimises travel time given our speed assumptions for different types of road, are calculated. Second, times between every domestic hub and the main international gateways are computed. To reach main markets, Central Asian shippers have to reach Moscow, Istanbul and Urumqi (main city of the Xinjiang province in Western China). These travel times are given for all scenarios: pre-BRI, post-BRI only with infrastructure investments and post-BRI with both infrastructure investments and border crossing time reductions. Total times include transport and borders times. Along with the standard clearance formalities, border-crossing times include waiting time, unloading or loading time, and time taken to change rail gauges, among other indicators. More details are given in Annex B. Finally shippers choose their optimal domestic hub comparing the average time to reach all three gateways starting from their district<sup>13</sup> .

**From time to cost: Measuring the iceberg costs** Several methods have been used to parameterize iceberg costs. Trade costs between locations o and d are modeled according to an iceberg assumption: for one unit of a good to arrive at its destination d, _τod_ > 1 units must be shipped from origin o. All assume that the trade cost incurred along the connection between o and d is a function of the time it takes to travel from o to d. Following Allen and Arkolakis (2017), we assume an exponential functional form, that has been used extensively in the economic geography literature, and ensures that infrastructure cost are always equal or greater than one.

with _timeij_ the time to travel from i to j in hours<sup>14</sup> . The parameter _κ_ was estimated for the United-States using traffic between the main cities (Allen and Arkolakis, 2017). They estimate the effect of travel time on traffic and choose to calibrate trade costs using _κ_ = 0 _._ 0108, indicating that a five hour trip incurs an ad valorem tariff equivalent trade cost of 5.5%. A more recent version of the paper finds that a one hour trip incurs a 7% trade cost. The parameter is estimated using the average trade cost of 20% ad valorem tariff equivalent, consistent with the literature on domestic distribution costs in the US, see e.g. Anderson and van Wincoop (2004). Other papers have assumed a linear form with _tod_ = 1 + _time_<sup>0</sup> _od_<sup>_._6(Alder, 2017; Roberts et al., 2012).In the</sup>

> 13A simple average is used here to aggregate times to reach the main gateways. We do not make any assumption on a favorite destination for each district.

> 14 _α_ = 1 in Allen and Arkolakis (2017)

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