Deep Integration and Production Networks: An Empirical Analysis

31 Pages Posted: 14 Jan 2014

See all articles by Gianluca Orefice

Gianluca Orefice

Centre d'Etudes Prospectives et d'Info. Internationales (CEPII)

Nadia Rocha

World Trade Organization

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Date Written: January 2014

Abstract

This paper investigates the two‐way relationship between deep integration and production networks trade. We capture deep integration with a set of indices constructed in terms of policy areas covered in preferential trade agreements. We estimate an augmented gravity equation to investigate the impact of deep integration on production networks trade. The results show that on average, signing deeper agreements increases production networks trade between member countries by almost 12 percentage points. In addition, the impact of deep integration is higher for trade in automobile parts and information and technology products compared with textile products. To analyse whether higher levels of network trade increase the likelihood of signing deeper agreements, we follow the literature on the determinants of preferential trade agreements. The estimation results show that, after taking into account other PTA determinants, a ten percentage increase in the share of production network trade over total trade increases the depth of an agreement by approximately 6 percentage points. In addition, the probability of signing deeper agreements is higher for country pairs involved in North–South production sharing and for countries belonging to the Asia region.

Suggested Citation

Orefice, Gianluca and Rocha, Nadia, Deep Integration and Production Networks: An Empirical Analysis (January 2014). The World Economy, Vol. 37, Issue 1, pp. 106-136, 2014, Available at SSRN: https://ssrn.com/abstract=2378658 or http://dx.doi.org/10.1111/twec.12076

Gianluca Orefice

Centre d'Etudes Prospectives et d'Info. Internationales (CEPII) ( email )

9 rue Georges Pitard
Paris Cedex 15, F-75015
France

Nadia Rocha

World Trade Organization ( email )

Rue de Lausanne 154
CH-1211 Geneva
Switzerland

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