'New Age' Preferential Trade Agreements and Global Value Chains: A Comparative Sectoral Analysis

The past three decades witnessed a simultaneous proliferation in the number of preferential trade agreements (PTAs) and the network of global value chains (GVCs). The rise in the number of PTAs has been accompanied by inclusion of 'deeper' provisions such as services, competition, intellectual property rights (IPR), etc. This study aims to explain the differential impact PTA 'depth' on trade in value added as well as the heterogeneous results observed across industries based on their distinctive characteristics. For this purpose, an augmented gravity equation with three-way fixed effects is estimated, using a relatively newer dataset for the time period 2000-2015 for 64 countries. The results conclude that the PTA 'depth' determined by nontariff and 'behind-the-border' provisions leads to greater participation of member countries in GVCs. Furthermore, it is shown that value added trade for a sector like automotive, which has higher product differentiation, intra-industry trade, IPR and FDI linkages is most impacted by the PTA 'depth'.