Deep Trade Agreements and Global Value Chains

40 Pages Posted: 19 Nov 2019

See all articles by Edith Laget

Edith Laget

World Bank

Alberto Osnago

World Trade Organization (WTO)

Nadia Rocha

The WorldBank Group

Michele Ruta

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

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Date Written: October 1, 2019

Abstract

Preferential Trade Agreements (PTAs) have become deeper over time, often encompassing a set of disciplines that go beyond traditional trade policy such as investment, competition, and intellectual property rights protection. In the policy and theory literature, a prominent argument why countries sign “deep” PTAs is to promote and facilitate the operation of Global Value Chains (GVCs). This paper exploits a new dataset on the content of PTAs and data on trade in value added and in parts and components to quantify the impact of deep trade agreements on bilateral cross-border production linkages. Results show that the positive impact of deep trade agreements on GVC integration is driven by value added trade in intermediate rather than in final goods and services. Adding a policy area to a PTA increases domestic value added of intermediates (forward GVC linkages) and foreign value added of intermediates (backward GVC linkages) by 0.48 and 0.38 percent, respectively. At the sectoral level, the positive impact of deep PTAs is higher for higher value-added services suggesting that deep agreements help countries to integrate in industries with higher levels of value added. On a larger sample of countries and years, results confirm that adding a provision to a PTA increases bilateral trade in parts and components by 0.3 percent. The content of PTAs also matters for GVC integration, but the impact varies by income group. Provisions outside the current WTO mandate (e.g. investment, competition policy) drive the effect of deep PTAs on value added trade and on North-South trade in parts and components. Provisions under the current WTO mandate (e.g. tariff reduction, customs facilitation) drive the effect of deep PTAs on South-South trade in parts and components.

Keywords: Trade Agreements; Global Value Chains; Deep Integration; Regionalism

JEL Classification: F13; F15

Suggested Citation

Laget, Edith and Osnago, Alberto and Rocha, Nadia and Ruta, Michele, Deep Trade Agreements and Global Value Chains (October 1, 2019). Robert Schuman Centre for Advanced Studies Research Paper No. RSCAS 2019/86, Available at SSRN: https://ssrn.com/abstract=3489075 or http://dx.doi.org/10.2139/ssrn.3489075

Edith Laget (Contact Author)

World Bank ( email )

1818 H Street, NW
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Alberto Osnago

World Trade Organization (WTO) ( email )

Rue de Lausanne 154
Geneva 21, CH-1211
Switzerland

Nadia Rocha

The WorldBank Group ( email )

1818 H Street NW
Washington, DC 20433
United States

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 )

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New York, NY 10027
United States

International Monetary Fund (IMF) ( email )

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