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On the relationship between rules of origin and global value chains

Author

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  • Doan Ngoc Thang
  • Le Thanh Ha
  • Hoang Phuong Dung
  • Trinh Quang Long

Abstract

This paper uses a modified gravity model to investigate the effects of rules of origin (RoO) on 61 countries’ participation in global value chains (GVCs) during the period 2005–2015. We define GVC participation as the value added contained in exports, looking both backward and forward from a reference nation. RoO are heterogeneous in the degrees of restrictiveness that govern the origin of products to obtain preferential tariff treatment. The empirical results show negative relationships between RoO’s restrictiveness and both backward and forward participation, and these adverse effects become more prominent when we control the endogeneity bias. However, the implementation of regime-wide RoO, including diagonal cumulation and de minimis, can reduce these negative effects. The mitigating roles of both regime-wide rules are quite similar in terms of magnitude, which is significant as the current literature on the liberalization of RoO only focuses on the role of cumulation. Our findings suggest that in order to upgrade participation in international production networks, a country should adopt a less restrictive and regime-wide RoO in free trade agreement (FTA) negotiations.

Suggested Citation

  • Doan Ngoc Thang & Le Thanh Ha & Hoang Phuong Dung & Trinh Quang Long, 2021. "On the relationship between rules of origin and global value chains," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 30(4), pages 549-573, May.
    • Handle: RePEc:taf:jitecd:v:30:y:2021:i:4:p:549-573
    DOI: 10.1080/09638199.2021.1880467
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    Cited by:

    1. Doan Ngoc Thang, 2024. "How do regional extreme events shape supply-chain trade?," International Economics and Economic Policy, Springer, vol. 21(1), pages 117-149, February.
    2. Thang, Doan Ngoc & Ha, Le Thanh, 2022. "Trade credit and global value chain: Evidence from cross-country firm-level data," International Economics, Elsevier, vol. 171(C), pages 110-129.
    3. Doan, Ngoc Thang, 2023. "Cultural proximity and global value chains," International Economics, Elsevier, vol. 175(C), pages 106-120.
    4. Himanshu Jaiswal & A. Ganesh Kumar, 2024. "A New mechanism for trade agreements to revitalize the global value chains," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2024-001, Indira Gandhi Institute of Development Research, Mumbai, India.

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