The past three decades witnessed a simultaneous proliferation in the number of preferential trade agreements (PTAs) and the network of global value chains (GVCs). The rise in the number of PTAs has been accompanied by inclusion of ‘deeper’ provisions such as services, competition, intellectual property rights (IPR), etc. This study aims to explain the differential impact PTA ‘depth’ on trade in value added as well as the heterogeneous results observed across industries based on their distinctive characteristics. For this purpose, an augmented gravity equation with three-way fixed effects is estimated, using a relatively newer dataset for the time period 2000-2015 for 64 countries. The results conclude that the PTA ‘depth’ determined by nontariff and ‘behind-the-border’ provisions leads to greater participation of member countries in GVCs. Furthermore, it is shown that value added trade for a sector like automotive, which has higher product differentiation, intra-industry trade, IPR and FDI linkages is most impacted by the PTA ‘depth’.
AhmadN., BohnT., MulderN., VaillantM., & ZacliceverD. (2017). Indicators on global value chains: A guide for empirical work (OECD Statistics Working Papers, 2017/08). OECD Publishing.
2.
AndersonJ. E., & van WincoopE. (2003). Gravity with gravitas: A solution to the border puzzle. American Economic Review, 93(1), 170–192.
3.
AntràsP., & StaigerR. W. (2012). Offshoring and the role of trade agreements. American Economic Review, 102(7), 3140–3183.
4.
BaierS. L., & BergstrandJ. H. (2004). Economic determinants of free trade agreements. Journal of International Economics, 64(1), 29–63.
5.
BaierS. L., & BergstrandJ. H. (2007). Do free trade agreements actually increase members’ international trade?Journal of International Economics, 71(1), 72–95.
6.
BaldwinR. E. (1989). The political economy of trade policy. Journal of Economic Perspectives, 3(4), 119–135.
7.
BaldwinR. (2012). Trade and industrialization after globalization’s second unbundling: How building and joining a supply chain are different and why it matters. InFeenstraR., & TaylorA.(Eds.), Globalization in an age of crisis: multilateral economic cooperation in the twenty-first century (pp. 165–212). University of Chicago Press.
8.
BaldwinR. (2016). The great convergence: Information technology and the new globalization. The Belknap Press of Harvard University Press.
9.
BaldwinR., & JaimovichD. (2012). Are free trade agreements contagious?Journal of International Economics, 88(1), 1–16.
10.
BaldwinR., & VenablesA. J. (2013). Spiders and snakes: Offshoring and agglomeration in the global economy. Journal of International Economics, 90(2), 245–254.
11.
BhagwatiJ. (1991). The world trading system at risk. Princeton University Press.
12.
BourgeoisJ., DawarK., & EvenettS. J. (2007). A comparative analysis of selected provisions in free trade agreements. European Commission.
13.
CardamoneP., & ScoppolaM. (2012). The impact of EU preferential trade agreements on foreign direct investment. The World Economy, 35(11), 1473–1501.
14.
CarrereC. (2006). Revisiting the effects of regional trade agreements on trade flows with proper specification of the gravity model. European Economic Review, 50(2), 223–247.
15.
ChenM. X., & MattooA. (2008). Regionalism in standards: Good or bad for trade?Canadian Journal of Economics/Revue canadienne d’économique, 41(3), 838–863.
16.
ClausingK. A. (2001). Trade creation and trade diversion in the Canada–United States free trade agreement. Canadian Journal of Economics/Revue canadienne d’économique, 34(3), 677–696.
17.
DamuriY. R. (2012). 21st century regionalism and production sharing practice (Working Paper No. CTEI-2012-4). Graduate Institute of International and Development Studies.
18.
DeeP., & GaliJ. (2005). The trade and investment effects of preferential trading arrangements. InItoT., & RoseA. K.(Eds.), International trade in East Asia (pp. 133–176). University of Chicago Press.
19.
DhingraS., FreemanR., & MavroeidiE. (2018). Beyond tariff reductions: What extra boost from trade agreement provisions? (CEP Discussion Paper No. 1532). Centre for Economic Performance.
20.
DürA., BacciniL., & ElsigM. (2014). The design of international trade agreements: Introducing a new dataset. The Review of International Organizations, 9(3), 353–375.
21.
DurandC., & MilbergW. (2020). Intellectual monopoly in global value chains. Review of International Political Economy, 27(2), 404–429.
22.
FrankelJ. A., & RoseA. (2002). An estimate of the effects of currency unions on trade and growth. Quarterly Journal of Economics, 117(2), 437–466.
23.
FreundC. (2000). Multilateralism and the endogenous formation of preferential trade agreements. Journal of International Economics, 52(2), 359–376.
24.
FukaoK., OkuboT., & SternR. M. (2003). An econometric analysis of trade diversion under NAFTA. The North American Journal of Economics and Finance, 14(1), 3–24.
25.
GonzálezJ. L., & HolmesP. (2011). The nature and evolution of vertical specialisation: What is the role of preferential trade agree-ments? (NCRR Trade Regulation Working Paper No. 2011/41). NCRR Trade Regulation.
26.
GrossmanG. M., & HelpmanE. (1995). The politics of free-trade agreements. The American Economic Review, 85(4), 667–690.
27.
HamiltonC. B., & WintersL. A. (1992). Opening up international trade with Eastern Europe. Economic Policy, 7(14), 77–116.
28.
HicksR., & KimS. Y. (2012). Reciprocal trade agreements in Asia: Credible commitment to trade liberalization or paper tigers?Journal of East Asian Studies, 12(1), 1–29.
29.
HofmannC., OsnagoA., & RutaM. (2017). Horizontal depth: A new database on the content of preferential trade agreements (Policy Research working paper no. WPS 7981). World Bank Group.
30.
HornH., MavroidisP. C., & SapirA. (2010). Beyond the WTO? An anatomy of EU and US preferential trade agreements. The World Economy, 33(11), 1565–1588.
31.
JohnsonR. C., & NogueraG. (2012). Accounting for intermediates: Production sharing and trade in value added. Journal of International Economics, 86(2), 224–236.
32.
KohlT. (2014). Do we really know that trade agreements increase trade?Review of World Economics, 150(3), 443–469.
33.
KohlT., & TrojanowskaS. (2015). Heterogeneous trade agreements, WTO membership and international trade: An analysis using matching econometrics. Applied Economics, 47(33), 3499–3509.
34.
KohlT., BrakmanS., & GarretsenH. (2016). Do trade agreements stimulate international trade differently? Evidence from 296 trade agreements. The World Economy, 39(1), 97–131.
35.
KrugmanP. (1995). Growing world trade: Causes and consequences. Brookings Papers on Economic Activity, 26(1), 327–377. https://doi.org/10.1093/0198293607.003.0005
36.
LagetE., OsnagoA., RochaN., & RutaM. (2019). Deep trade agreements and global value chains (EUI Working Paper No. 86). Robert Schuman Centre for Advanced Studies.
37.
LawrenceR. Z. (1996). Regionalism, multilateralism, and deeper integration. Brookings Institution Press.
38.
LeeW. (2019). Services liberalization and global value chain participation: New evidence for heterogeneous effects by income level and provisions. Review of International Economics, 27(3), 888–915.
39.
LimãoN. (2007). Are preferential trade agreements with non-trade objectives a stumbling block for multilateral liberalization?The Review of Economic Studies, 74(3), 821–855.
40.
MaggieG., & Rodriguez-ClareA. (2007). A political-economy theory of trade agreements. American Economic Review, 97(4), 1374–1406.
41.
MangerM. S. (2012). Vertical trade specialization and the formation of North-South PTAs. World Politics, 64(4), 622–658.
42.
MansfieldE. D., & ReinhardtE. (2003). Multilateral determinants of regionalism: The effects of GATT/WTO on the formation of preferential trading arrangements. International Organization, 57(4), 829–862.
43.
Martínez-ZarzosoI., & Nowak-LehmannF. (2003). Augmented gravity model: An empirical application to Mercosur-European Union trade flows. Journal of Applied Economics, 6(2), 291–316.
44.
MattooA., & FinkC. (2002). Regional agreements and trade in services: Policy issues (World Bank Policy Research Working Paper, No. 2852). World Bank.
45.
MattooA., MulabdicA., & RutaM. (2017). Trade creation and trade diversion in deep agreements (Policy Research Working Paper No. 8206). World Bank.
46.
MedvedevD. (2012). Beyond trade: The impact of preferential trade agreements on FDI inflows. World Development, 40(1), 49–61.
47.
MichalopoulosC. (1999). Developing countries’ participation in the world trade organization. (World Bank Policy Research Working Paper, WPS 1906). World Bank.
48.
OlsenR. J. (1980). A least squares correction for selectivity bias. Econometrica: Journal of the Econometric Society, 48(7), 1815–1820.
49.
OreficeG., & RochaN. (2014). Deep integration and production networks: An empirical analysis. The World Economy, 37(1), 106–136.
50.
RoyJ. (2010). Do customs union members engage in more bilateral trade than free-trade agreement members?Review of International Economics, 18(4), 663–681.
51.
SaggiK. (2006). Preferential trade agreements and multilateral tariff cooperation. International Economic Review, 47(1), 29–57.
52.
ShingalA. (2016). Going beyond the 0/1 dummy: Estimating the effect of heterogeneous provisions in services agreements on services trade. InSauvéP., & RoyM.(Eds), Research handbook on trade in services (pp. 107–122). Edward Elgar Publishing.
53.
SilvaJ. S., & TenreyroS. (2006). The log of gravity. The Review of Economics and Statistics, 88(4), 641–658.
54.
SmithJ. M. (2000). The politics of dispute settlement design: Explaining legalism in regional trade pacts. International Organization, 54(1), 137–180.
55.
SturgeonT., Van BiesebroeckJ., & GereffiG. (2008). Value chains, networks and clusters: Reframing the global automotive industry. Journal of Economic Geography, 8(3), 297–321.
56.
TinbergenJ. (1962). Shaping the world economy: Suggestions for an international economic policy. Twentieth Century Fund.
57.
TreflerD. (1993). Trade liberalization and the theory of endogenous protection: An econometric study of US import policy. Journal of Political Economy, 101(1), 138–160.
58.
TreflerD. (2004). The long and short of the Canada–US free trade agreement. American Economic Review, 94(4), 870–895.
59.
TokasK. (2021). ‘New age’ preferential trade agreements and global value chains: An empirical analysis. Global Business Review. https://doi.org/10.1177/09721509211006867
60.
United Nations Conference on Trade and Development (UNCTAD). (2017). Key Statistics and Trends in Trade Policy. https://unctad.org/system/files/official-document/ditctab2017d5_en.pdf.
61.
United Nations., European Commission., International Monetary Fund., Organisation for Economic Co-operation and Development., & World Bank. (2009). System of national accounts 2008. New York: United Nations.
62.
VinerJ. (1950). The customs union issue. Carnegie Endowment for International Peace.
63.
WhalleyJ. (1998). Why do countries seek regional trade agreements?InFrankelJ. A.(Ed.)The regionali-zation of the world economy (pp. 63–90). University of Chicago Press.
64.
World Health Organization (WHO). (2015). Global status report on road safety. https://www.who.int/violence_injury_prevention/road_safety_status/2015/Section_1_GSRRS2015.pdf
