The Impact of Deep Preferential Trade Agreements on (Global Value Chain) Trade: Who Signs Them Matters

Abstract

ABSTRACT This paper investigates the impact of deep preferential trade agreements (PTAs) on total and global value chain (GVC) trade flows. We employ an augmented gravity equation that includes three-dimensional fixed effects, using a panel dataset covering the 1995–2015 period that includes newly available data for the policy areas covered by existing PTAs. Results show that the presence of PTAs has an overall positive impact on (GVC) trade flows and that deep PTAs are more effective in increasing (GVC) trade flows than shallow PTAs. These results confirm the need to consider the heterogeneity of agreements when estimating the effect of PTAs on (GVC) trade flows. However, the channels through which deep integration influences (GVC) trade flows differ across PTA signatories. We find that the heterogeneous effects of deep PTAs across the income level and geographical origin of bilateral signatories are driven by different groups of provisions in PTA agreements.