Deep Integration and Global Value Chains: An empirical analysis on the impact of preferential trade agreement depth on GVC-related trade

Abstract

The main purpose of this thesis is to show how the depth of preferential trade agreements (PTAs) impacts trade related to global value chains (GVCs), defined as imports of parts and components and foreign value added in gross exports.

The importance of GVCs has grown over the last few decades

at the same time, the number of PTAs has increased dramatically since the 1990s. In this period, there has also been a shift in the agenda of PTAs towards deeper integration policies, from the traditional focus on reducing tariffs to an emphasis on behind-the-border policies such as trade-related investment issues, services, competition, intellectual property rights, etc.

This paper presents empirical evidence on how PTA depth impacts GVC-related trade using a gravity model with multiple fixed effects. A panel data set consisting of observations on 191 countries from 1995 to 2015 is constructed when the dependent variable is designated as imports of parts and components while another set on 61 countries for the period of 1995, 2005, 2008 – 2011 is collected for foreign value added in gross exports. Overall, the findings show that PTA depth has a significant and positive influence on GVC-related trade. Furthermore, the results of an analysis to test this relationship, with countries categorized as developed or developing, reveal that only deeper agreements between developed countries lead to increased GVC trade.