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Deep integration and production networks: an empirical analysis

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  • Gianluca OREFICE
  • Nadia ROCHA

Abstract

In this paper, the two way relationship between deep integration and production networks trade is investigated. Deep integration is captured by a set of indices constructed in terms of policy areas covered in preferential trade agreements. An augmented gravity equation is estimated to investigate the impact of deep integration on production networks. The results show that on average, signing deeper agreements increases production networks trade between member countries by almost 35 percentage points. In addition, the impact of deep integration is higher for trade in automobile parts and information and technology products compared with textiles products. To analyse whether higher levels of network trade increase the likelihood of signing deeper agreements the literature on the determinants of preferential trade agreements is followed. The estimation results show that, after taking into account other PTAs determinants, a ten per cent increase in the share of production network trade over total trade increases the depth of an agreement by approximately 6 percentage points. In addition, the probability of signing deeper agreements is higher for country pairs involved in North-South production sharing and for countries belonging to the Asia region.

Suggested Citation

  • Gianluca OREFICE & Nadia ROCHA, 2011. "Deep integration and production networks: an empirical analysis," Departmental Working Papers 2011-24, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
  • Handle: RePEc:mil:wpdepa:2011-24
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    Cited by:

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    2. Robert C. Johnson & Guillermo Noguera, 2012. "Fragmentation and Trade in Value Added over Four Decades," NBER Working Papers 18186, National Bureau of Economic Research, Inc.
    3. Gianluca Orefice, 2015. "International migration and trade agreements: The new role of PTAs," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 48(1), pages 310-334, February.
    4. Jayant Menon, 2013. "Can FTAs Support the Growth or Spread of International Production Networks in Asia?," Departmental Working Papers 2013-06, The Australian National University, Arndt-Corden Department of Economics.
    5. João Amador & Sónia Cabral, 2014. "Global Value Chains: Surveying Drivers, Measures and Impacts," Working Papers w201403, Banco de Portugal, Economics and Research Department.
    6. Giordani, Paolo E. & Ruta, Michele & Weisfeld, Hans & Zhu, Ling, 2017. "Capital flow deflection," Journal of International Economics, Elsevier, vol. 105(C), pages 102-118.
    7. Amador, João & Cabral, Sónia, 2014. "Global value chains: surveying drivers and measures," Working Paper Series 1739, European Central Bank.
    8. Richard Pomfret, 2012. "The Post-2007 Crises and Europe's Place in the Global Economy," CASE Network Studies and Analyses 439, CASE-Center for Social and Economic Research.
    9. Jean Mercenier & Ebru Voyvoda, 2018. "On Barriers to Technology Adoption, Appropriate Technology and Deep Integration (with implications for the European Union)," ERC Working Papers 1806, ERC - Economic Research Center, Middle East Technical University, revised Apr 2018.
    10. David Córcoles & Carmen Díaz-Mora & Rosario Gandoy, 2015. "Export Survival in Global Production Chains," The World Economy, Wiley Blackwell, vol. 38(10), pages 1526-1554, October.
    11. Jørgensen, Jan Guldager & Schröder, Philipp J.H., 2014. "Harmonization versus Mutual Recognition: Some pitfalls for the coordination of product standards under imperfect competition," Discussion Papers on Economics 23/2014, University of Southern Denmark, Department of Economics.
    12. Richard Pomfret & Richard Pomfret, 2014. "Expanding the Division of Labour: Trade Costs and Supply Chains in the Global Economy," Australian Economic History Review, Economic History Society of Australia and New Zealand, vol. 54(3), pages 220-241, November.
    13. Rahul Sen & Sadhana Srivastava, 2011. "Integrating into Asia’s international production networks: Challenges and prospects for India," STUDIES IN TRADE AND INVESTMENT, in: Witada Anukoonwattaka & Mia Mikic (ed.), India: A New Player in Asian Production Networks?, Studies in Trade and Investment 75, chapter 4, pages 78-119, United Nations Economic and Social Commission for Asia and the Pacific (ESCAP).
    14. Tristan Kohl, 2014. "Do we really know that trade agreements increase trade?," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 150(3), pages 443-469, August.
    15. Rahul Sen & Sadhana Srivastava, 2012. "Asia' s international production networks: Will India be the next assembly centre?," Working Papers 11812, Asia-Pacific Research and Training Network on Trade (ARTNeT), an initiative of UNESCAP and IDRC, Canada..

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    More about this item

    Keywords

    Regionalism; deep integration; production networks;
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F15 - International Economics - - Trade - - - Economic Integration
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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