Services liberalization and GVC participation: New evidence for heterogeneous effects by income level and provisions

Participation in global value chains (GVCs) is a key element in the industrialization strategies of many developing nations. Many studies look at the determinants of GVC participation but most focus on domestic regulatory environments, the cost of doing business, and trade policy. This paper investigates the possibility that services also matter by empirically testing for a link between higher GVC participation and services liberalization. Using the gravity framework, I examine the impact of services trade agreements on gross trade and GVC-trade (backward and forward participation). I find that services trade agreements promote both, but especially GVC-trade, although the effects are heterogeneous: the impact is bigger for developing nation exporters. Moreover, I find that services agreements that allow the export of services without local presence (non-establishment rights) are particularly important in fostering GVC participation.