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An Empirical Investigation of Trade Diversion and Global Value Chains

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  • Francois de Soyres
  • Julien Maire
  • Guillaume Sublet

Abstract

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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  • Francois de Soyres & Julien Maire & Guillaume Sublet, 2019. "An Empirical Investigation of Trade Diversion and Global Value Chains," World Bank Publications - Reports 33058, The World Bank Group.
    • Handle: RePEc:wbk:wboper:33058
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    Cited by:

    1. Dmitriy Aleksandrovich Izotov, 2021. "Trade Integration in the Asia-Pacific Region: Decomposition of Effects," Spatial Economics=Prostranstvennaya Ekonomika, Economic Research Institute, Far Eastern Branch, Russian Academy of Sciences (Khabarovsk, Russia), issue 1, pages 66-96.
    2. Francois de Soyres & Sebastian Franco, 2019. "Inflation Dynamics and Global Value Chains," World Bank Publications - Reports 33059, The World Bank Group.
    3. Francois de Soyres & Alexandre Gaillard, 2019. "Trade, Global Value Chains and GDP Co-Movement," World Bank Publications - Reports 33060, The World Bank Group.

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