Value Added Trade Restrictiveness Indexes. Measuring Protection with Global Value Chains

In this work we build on Anderson and Neary (1996; 2005) insight and extend the set of ‘trade restrictiveness indexes’ in order to account for the rising of the international fragmentation of production in Global Value Chains. This is done by incorporating the factor content approach of Neary and Schweinberger (1986) into a behavioral model of tariff aggregation, and extending it to a value-added framework. We define the reference criteria for the equivalent impact of trade policies using the decomposition methods proposed in macro approaches by recent value added in trade literature. The index is construct in such a way to distinguish, at the bilateral level, the domestic and the foreign (bilateral or indirect) value added content in the importing country. In our comparative static analysis, we adapt and extend the code and data of a newly developed version of the GTAP model with sourcing of imports by agent, in order to implement the value added decomposition of trade flows. The overall protectionist stance is then measured in terms of value added rather than with reference to the more traditional metrics, such as gross trade.