Services liberalization and global value chain participation: New evidence for heterogeneous effects by income level and provisions

Abstract

Participation in global value chains (GVCs) is a key element in the industrialization strategies of many developing nations. This paper investigates the role of services liberalization in promoting participation in GVCs. Using the gravity framework, I examine the impact of services trade agreements on gross trade and GVC trade (backward and forward participation) in goods. 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, services agreements that allow the export of services without local presence (nonestablishment rights) are particularly important in fostering GVC participation.

Bilateral servicification in global value chains and deep trade agreements

“…In our model, the difficulty is even bigger because the variable of intra‐national flows needs to be consistent with our dependent variable. In fact, the previous studies that analyse the impact of trade liberalisation on GVC‐related trade do not include intra‐national flows (Laget et al, 2020; Lee, 2019; Rubínová, 2017). In this paper, we use the domestic services value added embodied in a country's manufacturing exports as the equivalent of intra‐national trade flows.…”

“…Moreover, asymmetric effects could arise from the mode of GVC participation. As Rubínová (2017) and Lee (2019) note, when trade is driven by international production fragmentation, we would expect that the effect of trade agreements would vary according to the income level of the partners and the direction of the trade flows. This suggests that services DTAs may have differential effects depending on whether they are signed between Northern countries, between Southern countries or between a Northern and a Southern country, as countries differ in their GVC participation depending on their specialisation pattern.…”

“…Her interpretation is that such liberalisation of trade in services is fundamental for the insertion of less developed economies in GVCs, which tend to specialise in low-value-added downstream activities. Lee (2019) explores the heterogeneous effects of services trade agreements on backward and forward GVC linkages and the heterogeneous effects of four different provisions on services such as most-favoured nation, national treatment, the right of non-establishment and movement of natural persons. His findings show a positive and statistically significant effect on GVC exports from South to North.…”

Liberalización de servicios y su incorporación en la industria manufacturera

“…A partir de su trabajo, el debate se ha dirigido en dos líneas. Por una parte, autores que han tratado de medir de mejor manera la liberalización en materia de servicios, tanto a nivel general (Borchert, Gootiiz, & Mattoo, 2012;Deardorff & Stern, 2005;McGuire, 2002) como de sectores específicos (Atthakor, 2005;Hollweg & Wong, 2009;McGuire, Schuele, & Smith, 2013;Warren, 2013), y por otra aquellos estudios que buscan analizar su impacto sobre el crecimiento (Chowdhury, 2017;Hoekman & Mattoo, 2008;Lee, 2019;Mattoo, Subramanian, & Rathindran, 1999;Tarr, 2012).…”

Does servicification of manufacturing increase the GVC activities of firms? Case of India

“…Recent studies also highlight the importance of servicification for manufacturing activities in the GVC in terms of differentiating their products through the bundling of their service solutions with their products. This reduces the likelihood of imitation and substitution in the market, thereby helping firms penetrate and sustain participation in GVCs (Cui & Liu, 2018; Lee, 2019; Low, 2013). Furthermore, services also provide the service linkages for manufacturing activities as enablers of GVCs by supplying the necessary business and logistical support, which is important for inter‐firm linkages in the GVC (Heuser & Mattoo, 2017).…”