China-Laos Economic Integration in the Context of the Belt and Road Initiative: Evidence From Sign Restrictions

This study empirically assesses the degree of business cycles synchronization and economic integration between Laos and China under the influence of the Belt and Road Initiative. We estimate a two-country structural VAR model and apply sign restrictions to identify the structural shocks for 1984-2022. We find that China’s macroeconomic shocks have played a significant role in shaping Laos’ GDP and price level and that China’s influence is increasing over time. Our results suggest that Laos’ business cycles have become more synchronized with China’s under the influence of the BRI, consistent with the overall literature of BRI’s impact on the developing countries.