Abstract
We study the relationship between the scope of trade policy cooperation and bilateral trade flows with a particular focus on global value chain (GVC) trade using data on the core and non-core provisions included in preferential trade agreements (PTAs). We find that broader PTAs have a larger impact on trade flows involving intermediates relative to flows involving all products, suggesting that GVC trade is particularly sensitive to the scope of trade policy cooperation. We also investigate different dimensions of heterogeneity in PTAs. We find that core provisions tend to drive the effect of PTAs on the level of GVC trade and that PTAs are particularly effective in raising the level of GVC trade between developing economies. We explore these issues using a sample of 189 countries over the period 1990–2015, with data obtained from the latest release of the EORA multi-regional input–output tables and UN-COMTRADE data.
Highlights
Preferential trade agreements (PTAs) are increasingly common between countries
When introducing our breadth variable in quadratic form, we find that the relationship between the scope of trade policy cooperation and the level of global value chain (GVC) trade appears to be hump-shaped, suggesting that there might be a threshold above which the returns to the inclusion of additional PTA provisions tend to decrease
Each additional ‘core’ provision increases the level of gross and intermediate exports by, respectively, 0.3 and 0.5 percentage points. These findings suggest that bilateral trade in intermediate products appears to be more sensitive to the scope of PTAs than ‘all’ trade flows
Summary
Preferential trade agreements (PTAs) are increasingly common between countries. PTAs are international treaties with restrictive membership, which include any article that applies only to its members and that aims at securing or increasing their respective market access. Countries that are engaged in preferential liberalisation include both developed and developing countries, with north–south PTAs becoming increasingly common (Cheong et al 2015). The stalemate in the process of multilateral liberalisation since the conclusion of the Uruguay Round in 1994 is often considered an important driver behind the rise of PTAs (Baccini 2019). In the absence of prospects for multilateral liberalisation, PTAs have become the main tool for countries to liberalise their trade—almost by default (Falvey and Foster-McGregor 2019)
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