Global Value Chains and Deep Integration
How does trade affect the design of preferential trade agreements (PTAs)? What is the role of global value chains (GVCs)? The authors answer these questions by empirically investigating the causal impact of gross and value-added trade on the depth...
| Main Authors: | , , , , |
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| Language: | English |
| Published: |
World Bank, Washington, DC
2021
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/274761616680730068/Global-Value-Chains-and-Deep-Integration http://hdl.handle.net/10986/35349 |
| Summary: | How does trade affect the design of
preferential trade agreements (PTAs)? What is the role of
global value chains (GVCs)? The authors answer these
questions by empirically investigating the causal impact of
gross and value-added trade on the depth of PTAs. To solve
the critical issue of endogeneity of trade flows for trade
policy, the identification strategy exploits a recent
transportation shock: the sharp increase in the maximum size
of container ships, which has more than tripled between 1995
and 2007. The key variation in our instrument hinges on the
fact that only deep-water ports can accommodate new larger
ships. The strategy is flexible enough to generate
excludable instruments for different value-added components
of exports. This allows us to assess how the design (depth)
of PTAs is affected not only by gross exports but more
specifically by GVC-trade as captured by indicators of trade
in domestic and foreign value added. The authors find that
trade occurring through GVCs increases the probability of
forming deep PTAs, i.e., agreements that include provisions
that go beyond the coverage of the WTO. These GVC-trade
effects are larger than those of gross exports, which
include flows that are unrelated to GVCs. The results
indicate that GVCs are one important driver of deep
preferential liberalization. |
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