An Empirical Investigation of Trade Diversion and Global Value Chains
This paper uses data on directional trade flows and Regional Trade Agreements (RTA) to i) estimate the effects of RTA on trade flows and ii) assess the importance of Global Value Chains for these effects. Based on a Difference-in- Difference identi...
| Main Authors: | , , |
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| Format: | Working Paper |
| Language: | English |
| Published: |
World Bank, Washington, DC
2019
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/480621576683574272/An-Empirical-Investigation-of-Trade-Diversion-and-Global-Value-Chains http://hdl.handle.net/10986/33058 |
| Summary: | This paper uses data on directional
trade flows and Regional Trade Agreements (RTA) to i)
estimate the effects of RTA on trade flows and ii) assess
the importance of Global Value Chains for these effects.
Based on a Difference-in- Difference identification
strategy, we find that RTAs are associated with: (1) an
increase in trade within the region, (2) a decrease in
inflows to the region, and (3) an increase in outflows from
the region. The first two findings can be understood as
trade creation and trade diversion due to a shift in demand
associated with the lower trade barriers within the region
and Rules of Origin as an implicit trade barrier for imports
from the rest of the world. Global Value Chains are most
relevant to understand the third finding on the increase in
outflows from the region. The key determinant of the
increase in outflows is the importance of the Regional Value
Chains for imports of intermediates by members of the region. |
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