The impact of the belt and road initiative on debt risk in participating countries

Since the launch of the Belt and Road Initiative (BRI), China and partner economies have promoted economic growth through close cooperation and mutual benefit. Nevertheless, critics argue that BRI projects have increased debt burdens in participating countries, particularly developing economies, potentially leading to a so called ‘debt trap’. Treating BRI participants as the treatment group and nonparticipants as the control group, this paper employs a difference-in-differences framework to estimate the BRI’s impact on sovereign debt risk and to identify the transmission channels. We find that the BRI significantly reduces debt risk among participating countries. Further mechanism analysis reveals that this effect operates not only through economic channels, specifically infrastructure and export trade, but also through political channels, political mutual trust and government governance. Moreover, the debt-mitigating effect is heterogeneous, with stronger impacts observed in countries characterized by higher income, greater financial development, and lower trade openness. These findings shed light on the nexus between geoeconomic cooperation and sovereign debt dynamics.