Deep Trade Integration and North-South Participation in Global Value Chains

Abstract

Do comprehensive trade agreements increase the participation of States in global value chains (GVCs) and contribute to their development? Although there is extensive evidence in the trade literature that deep preferential trade agreements (PTAs) can increase States’ bilateral export of final goods and, by implication, contribute to local development, much less is known about the characteristics of this effect on GVC relations. This paper answers the question in the framework of a gravity model and uses a comprehensive dyadic data set on trade in GVCs, PTAs, export and other characteristics for 188 countries and economies between 1990 and 2018. Results provide robust evidence that deep PTAs increase members’ bilateral trade in GVCs over the long term, especially when these agreements involve at least one developing country or economy and include provisions that support investment. These results underscore that GVC-facilitating deep PTAs are a powerful policy tool that can mobilize the potential of production and trade in GVCs for development.

Keywords: development, global value chains (GVCs), integration, investment, trade agreements

JEL Classification: F14, F15, F55, F63