Trading up for development:
The effect of deep trade integration on global value chains (GVCs)
My PhD thesis empirically examines the effect of institutionalized deep preferential trade integration, such as preferential trade agreements (PTAs), on developing countries' (and their firms') capacity to participate in global value chains (GVCs). It includes three papers, for which I created three separate datasets.
The first paper examines if the proliferation of deep bilateral integration increases states’ participation in global value chains (GVCs). It provides robust evidence that deep trade integration increases states’ participation in GVCs, and that the size of this effect is more pronounced over the long term, when PTAs include provisions supporting investment, or if at least one partner is a developing country.
The second paper brings the question of institutions into the discussion of firms’ participation in GVCs and the distributional consequences of trade integration in this context. It combines macro (country) and micro (firm) level data and examines the effect of institutions on the relation between integration and firms’ participation in GVCs. It finds that when the quality of domestic institutions is high, trade integration increases firms’ participation in GVCs.
The third paper examines if PTAs increase the resilience of GVC trade against external shocks at the firm level. It shows that countries (and firms) that have actively participated in GVCs pre-pandemic experience much less reduction in their export during the pandemic under the effect trade agreement.
Together, findings in these papers suggest that deep trade integration is a powerful and long-lasting policy tool that can effectively mobilize trade in GVCs for development. In addition, deep integration adds to the certainty in trade policy and increases the resilient of GVCs linkages against external shocks at the firm level. However, it must also be noted that the context matters: participation in GVCs is conditioned not only on deep integration and the heterogenous characteristics of firms, such as productivity, but also on the quality of local institutional environment, which have a strong mediating and distributional effect on the integration of countries and their firms in GVCs.