How Do Social Provisions in Trade Agreements Affect Global Value Chains?

• In Event: Social Responsibility and International Economic Policy

Abstract

Increasingly, preferential trade agreements (PTAs) include substantial social provisions tackling labor and environmental issues. For firms, implementing such clauses could be a double-edged sword. On the one hand, these provisions are a form of corporate social responsibility and may foster productive, sustainable, and lucrative business environments. On the other hand, social provisions can be costly or difficult to implement. Little empirical research assesses when and how firms are adapting to these non-trade issues in preferential trade agreements. By employing an analysis of quantitative data on the design of non-trade issues in 478 PTAs and mergers and acquisitions between 1948 and 2018, we analyze the influence of labor and environmental provisions in PTAs on global value chains. We employ matching and a heckman selection model to account for endogeneity concerns. Building on the legal and business studies literatures, we expect that industrial sector and the development level of partners are critical to explaining changes in global value chains when countries join PTAs with non-trade provisions. The design of the PTA also matters; our results point to production networks reacting more to environmental rather than labor provisions in PTAs. Our findings provide nuance to our current understanding of the interconnections across global trade and multinational production.

Authors

• Ida Bastiaens, Fordham University

• Evgeny Postnikov, University of Melbourne

• Lisa Lechner, University of Innsbruck