This paper examines infrastructure spending in a model economy. Infrastructure is subdivided into two types: one that makes future production more efficient, and another that decreases the risk of devastation to the future economy. We call the first type base infrastructure, and the second type risk-reducing infrastructure. Our model assumes that a single representative individual makes all the decisions within a society and optimizes their own total utility over the present and future. We then calibrate an aggregate economic, two-period model to identify the optimal allocation of today’s output into consumption, base infrastructure, and risk-reducing infrastructure. This model finds that many governments can make substantive improvements to the happiness of their citizens by investing significantly more into risk-reducing infrastructure.

Over the past six years, China has embarked on an international economic initiative titled, “The Belt and Road Initiative” in which it finances and constructs multi-billion-dollar infrastructure development projects around the world. Aimed at building out energy and transportation infrastructure, these projects are being undertaken in approximately 68 countries. So far, China has pledged $1 trillion to the initiative, 95% of which is has come from public sources . However, it is projected that, in order to maintain its current growth, Developing Asia will require an additional $26 trillion in investment by 2030 .

The hundreds of projects have been grouped into six maritime and land-based economic corridors that retrace many of the original routes of the Silk Road. Of these corridors, the China-Pakistan Economic Corridor (CPEC) has proven to be one of the most important in China’s quest for Asian economic integration. The CPEC is the BRI’s first major economic corridor and one of the largest, receiving approximately $39 billion in investments to date.

Despite the thousands of articles and research papers that have been written on the topic, there are very few resources that provide a more comprehensive view of the Belt and Road Initiative. Consistent information on BRI projects is difficult to find, as both China and its debtors have been withholding many of the details regarding construction progress and lending activity. As a result, this thesis attempts to reconcile the simultaneous surplus of research with the shortage of conclusive information by framing its analysis in the form of a question about the BRI’s likelihood of success.

This thesis explores the history of the Silk Road, the progress of the Belt and Road Initiative, and the project’s global implications. In order to determine the BRI’s likelihood of success, this thesis identifies the China-Pakistan Economic Corridor (CPEC) as the economic corridor most likely to succeed of the six. It then analyzes the CPEC, determining that, despite the fact that it is the economic corridor most likely to succeed, it likely will not. It then builds upon this to conclude that the BRI, too, is unlikely to succeed.

In addition, this thesis critiques many of the expansionary policies, loose lending practices, and near-term decisions made by Chinese leadership by arguing that the BRI is an initiative for the benefit of China and not its debtors.

This paper provides a revised accounting system for the U.S. current account that accounts for the U.S. foreign intangible capital stock, capitalizes U.S. intangible investments, and applies a constant average real 4.2% return on both quarterly tangible and intangible investments. This system also adjusts the net foreign asset position for transfer pricing and considers economic net exports rather than misreported accounting net exports. The 2 primary implications of our system is that the U.S. is in a trade surplus, and that the U.S. net foreign asset position is large. Applying a 4.2% constant average real return on foreign investments and considering economic profits instead of accounting profits eliminates the discrepancy between U.S. and foreign returns on foreign direct investment. This system solves how the U.S. can appear as a large net debtor while receiving positive income from foreign factors. The answer is that the U.S. is not a large net debtor.