Rails of the New Silk Road: railway commitment, host-country risk, and Chinese outward FDI along the Belt and Road

This study examines whether the commencement of China-built railway projects mitigates the deterrent effect of host-country risk on Chinese outward foreign direct investment (OFDI) in Belt and Road host countries. Using the staggered commencement of railway projects in a quasi-experimental difference-in-differences (DID) design, we analyze a country-level panel of 2,970 host-country-year observations and a firm-level panel of 34,322 listed-firm-host-country-year observations for 2003–2024. Railway commencement significantly increases both the scale and frequency of Chinese OFDI and weakens the deterrent effect of host-country risk. The positive railway-by-risk interaction indicates that infrastructure commitment reduces the option value of waiting in risky markets. Two channels transmit the effect: greater bilateral trade at the aggregate level and relaxed financing constraints at the firm level. The investment response is concentrated in developing host countries and among capital-intensive and non-technology firms, whereas risk moderation extends more broadly. Neither effect appears in countries sharing a land border with China. The results remain robust across alternative staggered-DID estimators, spillover controls, lagged-dependent-variable specifications, PSM-DID, PPML estimation, and placebo tests. Phase-specific analysis shows that risk moderation begins during construction, while the firm-level scale response emerges mainly after railway lines enter operation.