Deep Trade Agreements and Vertical FDI

Recent data show that the institutional content of preferential trade agreements has evolved over time. Although pre-1990s preferential trade agreements mostly focused on tariff liberalization, recent agreements increasingly contain deep provisions in diverse areas, such as intellectual property rights, investment, and standards. At the same time, there has been a remarkable increase in the internationalization of production through foreign direct investment and outsourcing. This paper employs the Antràs and Helpman (2008) model of contractual frictions and global sourcing to study how deep trade agreements affect the international organization of production. The paper constructs new measures of the depth of preferential trade agreements and of vertical foreign direct investment to test the theory. Consistent with the model, the analysis finds evidence that the depth of trade agreements is correlated with vertical foreign direct investment, and that this is driven by the provisions that improve the contractibility of inputs provided by suppliers, such as regulatory provisions. Because this implication of the model is specific to the so-called “property rights” theory of the multinational firm, the findings provide empirical support to this approach vis-à-vis alternative theories of firm boundaries.

Bibliographic Details

Main Authors:	Osnago, Alberto, Rocha, Nadia, Ruta, Michele
Format:	Working Paper biblioteca
Language:	English en_US
Published:	World Bank, Washington, DC 2015-10
Subjects:	TARIFFS, MULTILATERAL TRADE, WORLD TRADE ORGANIZATION, INTERNATIONAL ECONOMIC LAW, PRODUCTION, TRADE EFFECTS, FOREIGN DIRECT INVESTMENTS, MULTINATIONAL CORPORATIONS, TRADE STRUCTURE, DISPUTE SETTLEMENT, TRADE RULES, EXPECTATIONS, PROPERTY RIGHTS, GDP PER CAPITA, EXPORTS, DOMESTIC MARKET, PARENT FIRM, POLITICAL ECONOMY, INCENTIVES, INTELLECTUAL PROPERTY RIGHTS, ECONOMIC POLICY, FREE TRADE AGREEMENTS, VARIABLES, PREFERENTIAL MARKET ACCESS, INPUTS, OWNERSHIP, DECISIONS, DUMPING, TREATIES, MARKET ACCESS, FREE TRADE, INTERNATIONAL BANK, PROTECTIONISM, INTERNATIONAL CONTRACTS, FOREIGN INVESTMENTS, BORDER MEASURES, TRADE AGREEMENTS, FINAL GOODS, PRODUCTION PROCESS, CHOICE, GROSS EXPORTS, PREFERENTIAL TRADE AGREEMENTS, LEGAL SYSTEMS, FOREIGN PRODUCTION, TARIFF DATA, EXOGENOUS SHOCKS, GLOBAL ECONOMY, ORGANIZATIONAL FORM, MULTINATIONAL FIRM, FOREIGN SUPPLIERS, REDUCTION IN TARIFFS, REGIONAL TRADE, AVERAGE TARIFFS, FIXED COSTS, CUSTOMS, SPECIALIZATION, ECONOMETRICS, PRODUCTIVITY, FINANCIAL INSTITUTIONS, CRITERIA, WTO, FOREIGN ASSETS, ACCESS, COUNTERVAILING MEASURES, PROTECTION OF INTELLECTUAL PROPERTY RIGHTS, TRADE POLICY, EXPORT TAXES, TRADE AGREEMENT, RULE OF LAW, ECONOMIC RESEARCH, TAXES, MULTILATERAL AGREEMENTS, INTERNATIONAL PRODUCTION, INTERNATIONAL TRADE, REGIONALISM, INTERNATIONAL INVESTMENT, COMPETITION POLICY, WAGE INEQUALITY, VALUE, COMPETITIVENESS, FOREIGN DIRECT INVESTMENT, EUROPEAN UNION, PATENTS, MULTILATERAL RULES, INVESTMENT TREATIES, INTERMEDIATE” GOODS, MEASUREMENT, INTERNATIONAL AGREEMENTS, ECONOMIC LAW, TRADE DIVERSION, MULTINATIONAL FIRMS, PROFITABILITY, LABOR STANDARDS, TRADE DATA, TRADE, MUTUAL RECOGNITION, GDP, GOODS, THEORY, LEGAL SYSTEM, BILATERAL TRADE, VERTICAL SPECIALIZATION, INVESTMENT, COMPARATIVE ADVANTAGE, PREFERENTIAL TRADE, TARIFF, WORLD TRADE, FOREIGN OUTSOURCING, INTELLECTUAL PROPERTY, FOREIGN COUNTRY, BILATERAL TRADE DATA, POLICY RESEARCH, FIXED COST, COUNTRY OF ORIGIN, INTERMEDIATE INPUTS, TECHNICAL BARRIERS, CONSUMER PROTECTION, DEVELOPMENT POLICY,
Online Access:	http://documents.worldbank.org/curated/en/2015/10/25225132/deep-trade-agreements-vertical-fdi-devil-details https://hdl.handle.net/10986/22885
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