Deep Trade Integration and the Resilience of GVC Engagement in Uncertain Times

• In Event: Global Value Chains (GVCs) and Global Economic Orders

Abstract

Does comprehensive trade integration increase the resilience of firms' GVCs linkages against supply chain disruptions? Using the COVID-19 episode as a test case, this paper examines whether comprehensive (deep) trade agreements help firms to maintain their production linkages to GVCs. The paper argues that because institutionalized trade integration strengthens the certainty and continuity of trade relations, firms in countries with deep trade agreements experience less decline in their export after a major disruption in supply chains caused by stringent lockdown measures. In assessing this argument, the paper uses a quarterly dataset that includes micro and macro data on firm-level export, levels of GVC integration, PTAs, COVID-19, and other country and firm characteristics for a panel of 13015 firms in twenty-two developing and developed countries. Results show that the depth of the trade agreement reduces the disruptive impact of lockdowns and closures on firms' export, especially for firms that were more integrated with GVC trade before the pandemic. The implication is that more comprehensive trade integration increases the resilience of supply chains in times of major shocks. This paper contributes to the micro-study of GVC integration and trade institutions in uncertain times.

Author

• Zarlasht M. Razeq, Princeton University