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Why your neighbor matters: Positions in preferential trade agreement networks and export growth in global value chains

Jong Hee Park and Byung Koo Kim

Economics and Politics, 2020, vol. 32, issue 3, 381-410

Abstract: In rapidly expanding global and regional preferential trade agreements (PTA) networks, policy‐makers are keen to situate their countries in a better position, believing that a better position in PTA networks will help their economies trade more and grow faster. In this paper, we provide a theory that explains how changes in countries' PTA network positions affect their trade performance. We argue that a dense and deep “neighbor network” provides a country with a wide access to global value chains, better protection to investment, and strong credibility to their policy commitments. To measure trade performance, we compute value‐added exports at the country, year, and industry level across 43 countries, 56 industries, and 15 years (2000–14). The estimation of network position effects is done by panel fixed‐effects methods and the sample‐splitting and cross‐fitting double machine‐learning method. The findings show that as a country's neighbors have deeper and wider PTA networks, the country's value‐added exports grow faster. Also, the industry‐level analysis shows that sectors heavily engaging in the fragmentation of production stages exhibit faster growth with the improvement of neighbor networks.

Date: 2020
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