Do Deep Trade Agreements’ Provisions Actually Increase – or Decrease – Trade and/or FDI?

Jeffrey Bergstrand and Jordi Paniagua
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Jeffrey Bergstrand: Department of Finance (Mendoza College of Business), Department of Economics (College of Arts and Letters), and Helen Kellogg Institute for International Studies (Keough School of Global Affairs), University of Notre Dame, and CESifo Munich. Address: Mendoza College of Business, University of Notre Dame, Notre Dame, IN 46556 USA.
Jordi Paniagua: Affiliation: Department of Economics, University of Valencia and Keough School of Global Affairs and Helen Kellogg Institute for International Studies, University of Notre Dame. Address: Department of Applied Economics II, University of Valencia, Avenue Tarongers s/n, 46022 Valencia, Spain.

No 2606, Working Papers from Department of Applied Economics II, Universidad de Valencia

Abstract: Over the past 30 years, deep trade agreements (DTAs) have expanded, influencing trade and multinational enterprises (MNEs) through numerous provisions. However, estimating the individual effects of these provisions remains underdeveloped. Using the World Bank’s DTA database, this paper applies the Shapley Value approach from cooperative game theory to generate unbiased estimates of the signs of all individual provisions’ partial effects. We find that DTAs’ provisions can have both positive and negative effects on trade. Our method addresses biases from omitted variables, over- aggregation, and multicollinearity. Beyond trade, we introduce a new dataset on MNEs (the Multilateral Revenue, Employment, and Investment Database, or MREID) examining provisions’ effects on bilateral FDI, costs, employment, revenues, and assets. We provide strong evidence that trade-boosting provisions tend to reduce FDI, and vice versa, indicating a substitution relationship with respect to DTAs’ provisions. Moreover, we find novel evidence using MREID that FDI-enhancing provisions are associated with lower costs per employee. Finally, we present computable general equilibrium welfare estimates for various policy counterfactuals.

Keywords: International trade; foreign direct investment; multinational enterprises; foreign affiliate sales; deep trade agreements (search for similar items in EconPapers)
JEL-codes: F1 F21 (search for similar items in EconPapers)
Date: 2026-04
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