Deep Trade Agreements and Global Value Chains

39 Pages Posted: 28 Aug 2018

See all articles by Edith Laget

Edith Laget

World Bank

Alberto Osnago

World Bank

Nadia Rocha

World Trade Organization

Michele Ruta

Economic Research Division, WTO; Columbia Business School - Economics Department; International Monetary Fund (IMF)

Date Written: June 25, 2018

Abstract

Preferential trade agreements have become deeper over time, often encompassing policy areas that go beyond traditional trade policy, such as investment, competition, and intellectual property rights protection. In the literature, a prominent argument why countries sign "deep" agreements is to promote and facilitate the operation of global value chains. This paper exploits a new data set on the content of trade agreements and data on trade in value added and in parts and components, to quantify the impact of the depth of trade agreements on bilateral cross-border production linkages. The results show that adding a policy area to a trade agreement increases the domestic value added of intermediates (forward global value chain linkages) and the foreign value added of intermediates (backward global value chain linkages) by 0.48 and 0.38 percent, respectively. At the sectoral level, the positive impact of deep trade agreements is higher for higher value-added industries, suggesting that deep agreements help countries to integrate in industries with higher levels of value added. For a larger sample of countries and years, the results confirm that an additional provision in a trade agreement increases bilateral trade in parts and components by 0.3 percent. The content of trade agreements also matters for global value chain integration, but the impact varies by income group. Provisions outside the current mandate of the World Trade Organization (investment and competition policy) drive the effect of trade agreements on North-South trade in parts and components. Provisions under the current World Trade Organization mandate (tariff reduction and customs facilitation) drive the effect of trade agreements on South-South trade in parts and components.

Keywords: International Trade and Trade Rules, Industrial and Consumer Services and Products, Transport and Trade Logistics, Competition Policy, Competitiveness and Competition Policy, Trade Finance and Investment

Suggested Citation

Laget, Edith and Osnago, Alberto and Rocha, Nadia and Ruta, Michele, Deep Trade Agreements and Global Value Chains (June 25, 2018). World Bank Policy Research Working Paper No. 8491. Available at SSRN: https://ssrn.com/abstract=3238329

Edith Laget (Contact Author)

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

Alberto Osnago

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

Nadia Rocha

World Trade Organization ( email )

Rue de Lausanne 154
CH-1211 Geneva
Switzerland

Michele Ruta

Economic Research Division, WTO ( email )

Rue de Lausanne 154
CH-1211 Geneva
Switzerland

HOME PAGE: http://www.iue.it/Personal/Fellows/MicheleRuta/Welcome.htm

Columbia Business School - Economics Department ( email )

420 West 118th Street
New York, NY 10027
United States

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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