THE VALUE-ADDED STRUCTURE OF TRADE FLOWS AND ITS IMPLICATIONS FOR TRADE POLICY ANALYSIS

Abstract

Against the widespread perception in international trade research that the success of trade policy has rendered it less relevant, a recent strand of literature has emerged with the aim of investigating the consequences of the increased complexity of international trade patterns for trade policy analysis. This work conceptually and analytically extends the focus of the effective protection to account for the international fragmentation of productive processes, and gives a new “value added trade restrictiveness index” (VA TRI) which synthesizes the upstream/downstream linkages and the protectionist measures on different sectors. Specifically, it allows to assess the impact the bilateral protection has on different value added components distinguished by their origin. In order to measure the overall protectionist stance in terms of value added, the decomposition methods proposed in macro approaches by recent value-added trade literature are used. In the descriptive analysis of this work, bilateral imports are decomposed at the sector level, in order to distinguish imports by domestic usage (e.g., domestic consumption either direct or indirect or production for exports). The results obtained with the two main databases used in GVCs analysis - GTAP database and WIOD - are compared. Finally, the incidence of trade policies in a GVCs framework is empirically addressed using a modified GTAP model.