A quasi-experimental approach to assess the causal impact of NTMs on GVC-trade

This work aims to assess the causal impact of Non-Tariff Measures (NTMs) on the global value chain (GVC)- trade within the agricultural sector. To achieve this goal, we utilize a panel structure of NTMs data at the HS 6-digit product level from the WTO I-TPI database, coupled with EORA data for trade in value added. The analysis encompasses 172 countries over the period 1995-2015. To calculate trade restrictiveness, we employ both NTMs frequency and coverage indices, distinguishing between various NTMs categories. This study introduces three key innovations. Firstly, unlike conventional analyses, we focus on trade flows in value added rather than gross ones. This approach allows us to assess the impact of NTMs on GVCs-trade, that is trade involving intermediate products. Secondly, we differentiate between types of NTMs to better discern their effects on GVC-trade. Lastly, we employ quasi-experimental methods to address non-linearities and endogeneity issues, relying on continuous treatment. This methodological advancement represents a significant improvement in studying the causal effects of NTMs. Our results show that NTMs matter and that their impact on GVC-trade varies in a non-linear way with the level of intensity. Specifically, the imposition of NTMs on GVC-trade has a negative impact on exporting countries, applicable to various NTM types, albeit with differentiated effects that are less prominent when weighted by the importance of importing flows. The implications of this study are significant: firstly, the omission of self-selection issues in analysing the effects of NTMs on GVC-trade can result in biased estimates; secondly, addressing the heterogeneity of NTMs is imperative. Thirdly, and crucially in GVC analysis, there are indirect effects on the domestic economy of the imposing country. This highlights the importance of the "chain effect" of trade policy, indicating that a restriction imposed by one country not only hampers partner countries' exports but also affects the imposing country itself through value chain linkages.