Uncertainty, Deep Regional Trade Agreements, and Global Value Chain Trade

This study explores the role of regional trade agreements (RTAs) in mitigating the negative effects of uncertainty on trade, focusing on their depth and differential impacts on global value chain (GVC) and traditional trade. By employing an augmented gravity model with data from 70 countries spanning 1995 to 2020, the analysis reveals that deep RTAs, incorporating WTO-plus and WTO-extra provisions beyond tariff reductions, significantly alleviate the negative effects of uncertainty on both GVC and traditional exports. In contrast, shallow RTAs do not provide such mitigation. This study further highlights the resilience of GVC trade to uncertainty, driven by relationship-specific investments and long-term partnerships, while also recognizing its vulnerability to cumulative trade costs. Deep RTAs demonstrate more pronounced and persistent uncertainty-mitigation effects for GVC trade compared to traditional trade. Furthermore, we also find that WTO-extra provisions exert a more pronounced impact on both GVC and traditional exports. These findings underscore the critical importance of deep RTAs in fostering economic resilience and sustaining global supply chains amidst increasing global uncertainties, offering valuable policy implications for the design of trade agreements.