Stephen B. Kaplan and Aparna Ravi
Abstract: How has the rise of state-led capitalism globally affected national competitiveness? Under the banner of the Belt and Road Initiative, China uses its national development banks as a form of overseas industrial policy to capture new commercial markets internationally. This paper develops a new theory of global development finance, contending that China’s state-led financing has catalyzed policymaking diffusion about the importance of state banking support for national firms. Building on the globalization literature, we anticipate this diffusion reflects global capital competition and peer emulation. However, diffusion is limited by national financial endowments, catalyzing a process of micro-emulation, where national governments use limited resources and knowledge of firm-level ecosystems to target competitive advantages. Employing national development banks as our unit of analysis, we develop an original Development Finance Institution (DFI) Index that classifies three different types of state-led financial instruments: export credits, overseas development loans, and state-backed equity investments. We conduct a comparative case study analysis of the BRICS economies, given their growing role in the international financial architecture. We find a generalized expansion of development finance institutions, but also a shift in DFI tool composition away from export credits, and towards overseas development loans and equity investments over time.