we allow trade costs to depend on shipping times, which will be directly affected by the investment in transport projects, in addition to tariffs and policy barriers. The importance of time as a trade barrier has been established in a number of papers including Hummels (2001), Hummels, Minor, Reisman and Endean (2007), Djankov, Freund and Pham (2010), and Hummels and Schaur (2013). For instance, Hummels and Schaur (2013) estimate that a one-day delay in shipping time is equivalent to an ad-valorem tariff of around 5 percent.<sup>4</sup> Second, we account in the model for the implications of infrastructure investment for the government budget and domestic taxation. Hence, relative to quantitative models for trade policy analysis, the study of common transport infrastructure requires information on the changes in bilateral trade costs associated to the changes in shipping times due to the new infrastructure and estimates of the cost of building the transportation infrastructure for each country.

Despite its complexity, this framework presents the advantage that regardless of the number of sectors and how complicated the interactions between sectors are, the model can be reduced to a system of one equation per country. Moreover, counterfactuals can be performed without prior knowledge of fundamentals such as sector-level total factor productivity or employment, rendering this framework ideal for policy analysis. The model is therefore well suited to analyze the shock due to common transport infrastructure. It shows that when a sector experiences a decrease in the price of its imported inputs as shipping times/trade costs fall, it passes on the associated reduction in production costs to downstream industries, propagating the benefits across the world. These input-output linkages lead to potentially complex reallocation of comparative advantage, production and trade, thus increasing welfare. At the same time, the need to finance transport infrastructure leads to higher taxes that reduce real consumption. The net welfare effect for each country results from the combination of the trade gains and the share of the costs of the common infrastructure.

We then use this framework to estimate the trade, GDP and welfare effects of the transport infrastructure related to the Belt and Road Initiative for 55 participating countries and a total of 107 countries/regions in the world (Figure 1). We use a combination of geographical data and network algorithms to compute the reduction in shipping time and trade costs between all country pairs in the world.<sup>5</sup> The computations are based on the Shortest Path Algorithm on both the current

> 4 Hummels and Schaur (2013) estimate the “value of time” both at the sectoral level as well as for all goods together. When including all goods and controlling for product fixed effects, they find that a one-day delay in shipping time is equivalent to an ad-valorem tariff of 0.6 to 2.3 percent. Separating each HS2 in different regressions, the average across all products is around 5 percent. de Soyres et al (2018) use the rich heterogeneity of Hummels and Schaur’s (2013) estimates at the HS2 level in order to account for each sector’s specificity in their sensitivity to time barriers.

5 The infrastructure projects considered in this study are the ones currently being constructed, planned or proposed as part of the BRI (see de Soyres et al., 2018, for the full list). We do not consider the question of 3