Abstract
The production of export goods has become increasingly unbundled, and countries positioning to become more integrated in the global economy are increasingly looking toward global value chains. This paper uses the Organisation for Economic Co-operation and Development/World Trade Organization's Trade in Value Added Database to assess Brazil's current integration in global value chains. It uses a structural gravity model estimated with parts and components to analyze the scope for Brazil to increase global value chain–related trade. One avenue to raise participation in global value chains is through (deeper) preferential trade agreements, and to this end the paper characterizes the level of integration of Brazil's current preferential trade agreements. Brazil has witnessed high growth in total domestic value added embodied in gross exports since 1995, yet it exhibits lower international engagement in global value chains, but tends to be stronger as a seller than a buyer. Most of the participation on the selling side comes from indirect linkages with domestic input sectors, and services sectors have been important for growing the indirect value added in global value chain–oriented exports. A deep integration agenda focusing not only on border measures, but also on beyond-the-border measures, would help Brazil to maximize the benefits from participation in global value chains. Other than its natural partners, Brazil should integrate with countries where global value chains are taking place. New agreements signed by Brazil and Mercosur with other regional members such as the Pacific Alliance should also take into consideration provisions such as investment, competition policy, and intellectual property rights, which are demonstrated to be very important for integration in global value chains.
Highlights
After significant growth in the value of Brazil’s trade over much of the past decade, Brazil has been losing export competitiveness in world markets since 2012
Brazil is a member of only 1 active Preferential Trade Agreement: The Southern Common Market (Mercosur)
In order to control for endogeneity and for the existence of zero trade flows the following structural gravity regression is estimated for a set of 189 countries between include 1990 and 2014 using Poisson pseudo maximum‐likelihood (PPML)16: global value chains (GVCs) exp β Depth δ δ δ ε (1) Where GVCijt is a measure of GVC‐related trade between country i and j at time t and it is captured with gross trade flows in parts and components from the UN Broad Economic Categories classification (BEC)17 Depth is a measure of the depth preferential trade agreements (PTAs)
Summary
After significant growth in the value of Brazil’s trade over much of the past decade, Brazil has been losing export competitiveness in world markets since 2012. Market access negotiations through regional trade agreements can be an important avenue for export growth, in particular GVCs, and productivity improvements. These include tariffs and non‐tariff measures, trade facilitation, and standardization of policies in services. Does poor transport and logistic infrastructure reduce the competitiveness of Brazilian producers in global markets, it reduces the level of economic integration across regions in Brazil, allowing wide differences in productivity and income levels to persist across states. The objective of the international trade component of the Brazil Productivity Programmatic Approach (PA) is to evaluate prospects for integration of the Brazilian economy into global value chains (GVCs), and the possible impact of new international agreements in facilitating this process. We present some recent results on the positive impact of deep integration on GVC‐related trade and tries to assess the reasons why Brazil has not fully benefitted, in terms of GVC participation, from its Preferential Trade Agreements
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