ABSTRACT The United States and China are pursuing fundamentally different artificial intelligence strategies, a divergence that has been largely obscured by the prevailing focus on large language model competition and frontier model capabilities. Drawing on official policy documents, original registration data for generative AI services in China, and a patent‐based case study of humanoid robotics firm UBTECH, this paper documents China's “diffusion‐forward” strategy: a state‐directed effort to embed AI as a general‐purpose technology across the physical economy, with particular emphasis on manufacturing, industrial robotics, and embodied AI. We show that China's approach is enabled by distinctive political‐economic institutions—decentralized but hierarchical governance, the investor‐state model, and campaign‐style industrial policy—and is already producing measurable commercial outcomes. These findings reframe the AI competition debate: the decisive contest may be less about which country achieves artificial general intelligence first and more about which political economy can more rapidly diffuse AI into productive activity.
ABSTRACT This paper examines the key drivers behind the rapid rise of China's electric vehicle (EV) industry, emphasizing the interaction between market forces and government policy. We argue that China's success reflects the synergy between the two rather than either government intervention or market competition alone. On the market side, intense competition, broad participation, learning‐by‐doing, and the development of a dense domestic supply chain accelerated technological progress and cost reduction. On the policy side, the government implemented a comprehensive and adaptive policy framework, including demand‐side incentives, technology‐oriented industrial policies, charging infrastructure investment, standardization, and opening‐up measures that addressed key market failures while reinforcing market incentives. Together, these forces created a self‐reinforcing cycle of innovation, market expansion, and productivity growth, enabling China to become the global leader in EV production, innovation, and exports. The paper concludes with broader lessons for industrial policy and emerging technology industries.
We provide new evidence of the effects of road construction on both domestic and international trade flows in the People's Republic of China (PRC) using customs records, satellite imageries, and transport investments data in the region, including those supported by multilateral development banks. We find that road construction helped to reduce trade costs significantly from 2000 to 2011, supporting the catch-up of inland regions in the PRC to its coastal cities. According to our estimates, the ad valorem rate of internal trade costs decreases by 13.4%, and the ad valorem rate of international trade costs decreases, on average, by 23.8%. Using satellite and customs data, we also document that the construction of the Kunming-Bangkok Expressway led to local economic growth and higher regional specialization in accordance with comparative advantage, suggesting the role of the road infrastructure in facilitating market integration across borders in the Greater Mekong Subregion.
Large-scale transport infrastructure can reshape urban land markets by changing accessibility, yet causal evidence on large-scale bridge projects remains limited, especially in developing countries. This paper examines the impact of the Mumbai Trans Harbour Link (MTHL), which opened in January 2024, on real estate prices in the Mumbai City District. Using parcel-level panel data from the Annual Statement of Rates for 2014-2025 and a difference-in-differences design based on distance to the bridge entrance ramp, we find that properties located closer to the MTHL experienced higher price increases after the bridge opened. The evidence is strongest in specifications that exclude parcels located near other major transport infrastructure, helping address concerns about overlapping development effects. The results are also consistent with capitalization beginning around the construction phase, suggesting that expectations about improved accessibility were at least partly reflected in property values before the bridge became operational. This trend disappears when land parcels in the more remote areas of the Mumbai Suburban District are included, suggesting that the impact of the MTHL attenuates with distance, although this pattern may not be fully captured by linear distance measures, particularly given differences in urban structure between the City and Suburban districts. These findings indicate that major investments in urban transport can be quickly capitalized in nearby property values in dense metropolitan settings, highlighting the importance of local spatial context in infrastructure evaluations.
Recently, global supply chains have been disrupted because of geopolitical factors and industrial policies induced by national security concerns. Under these circumstances, creating supply chain resilience and strengthening economic security are of great interest to researchers, policymakers, and business people. This study overviews the growing literature, both theoretically and empirically, on supply chain resilience and industrial policies and provides policy implications from the perspective of Asia, particularly Japan. The major means to create supply chain resilience include diversification of partners across like-minded countries (friendshoring) and (re)location of production facilities in the domestic economy (onshoring). For effective friendshoring, policies should provide information on foreign risks and markets to the private sector. For effective onshoring, industrial policies should promote competition within, openness of, and knowledge diffusion in the target industry. To further strengthen the effectiveness of these policies for supply chain resilience and economic security, multilateral cooperation among Asian countries is suggested.JEL Classification: F13, F51
The North-South Commuter Rail (NSCR) will dramatically alter the transport network for the most economically vibrant regions in the Philippines. This paper develops a spatial computable general equilibrium model to consider how this infrastructure will change the economic opportunities in the rail catchment area of about 10,000 km2. Calibrated on the state of the economy in 2020, the results suggest that by itself, the NSCR has limited economic impact compared to the baseline by 2040. The NSCR's substantial potential to spur growth can only be realized when accompanied by land market reforms that accommodate urban development even as environmentally-sensitive areas remain protected. This increases the area's gross value-added by 3.7% relative to the baseline. Coupling land market reforms with policies to reduce business costs in strategic locations ensures that the rail has the greatest impact, however the marginal benefit of each industrial cluster is influenced by the strength of agglomeration economies.JEL Classification: O2, R1, R3
This paper examines the economic impacts of trade wars and economic decoupling using the Institute of Developing Economies' Geographical Simulation Model (IDE-GSM), focusing on Trump's "reciprocal tariff" policies announced on April 2 and July 31, 2025. Simulation analysis reveals that protectionist trade policies generate substantial negative-sum outcomes, with the United States experiencing GDP contractions of 3.0%-5.2% and the global economy declining by 0.8%-1.3%. The analysis shows that relative tariff rates across countries, rather than absolute levels, become the primary determinant of economic impacts for individual countries. Regional economic integration emerges as an effective mitigation strategy, with RCEP deepening generating 1.4 percentage-point gains in GDP and CPTPP deepening providing 0.6 percentage-point gains for member countries.JEL Classification: F13, F15, F17.
In this article, we examine the spillover effects of trade and FDI policy changes on countries that are not directly involved-that is third markets. Specifically, we investigate this issue using two cases: anti-dumping tariffs imposed on Chinese exports and China's relaxation of restrictions on inward FDI. Our findings suggest that country-specific tariffs do not necessarily lead to increased exports being redirected to non-sanctioning countries-a phenomenon known as trade deflection. We also find that China's unilateral FDI liberalization prompted structural changes within Japanese multinational firms by reinforcing global value chains. Finally, we discuss how other barriers to trade and FDI flows-such as geopolitical tensions and health shocks-affect the behavior of Japanese multinational and domestic firms.
This paper critically examines the economic and welfare implications of financing green and brown sectors. Drawing on a comprehensive review of recent theoretical and empirical literature, we highlight that while conventional green finance-allocating capital toward environmentally friendly ("green") sectors and away from carbon-intensive ("brown") sectors-can promote decarbonization, it may also produce unintended externalities. In particular, it can inadvertently incentivize higher emissions from brown firms and contribute to economic disruption. Using a dynamic stochastic general equilibrium (DSGE) model, we demonstrate that lowering the cost of capital for green sectors leads to only modest reductions in emissions, whereas raising it for brown sectors can paradoxically increase emissions. These findings underscore the importance of transition finance, which channels capital to support the decarbonization of brown sectors, especially in the context of Asia's carbon-intensive economies. We conclude with policy recommendations to strengthen transition finance markets across the region.
