The United States has 14 preferential trade agreements with 20 of its trading partners. According to CBO, the consensus among economic studies is that such deals have had a small overall positive impact on the U.S. economy. With the increasing development of CPGs, our product-based action is important to study the impact of APTs on bilateral trade. In addition, we use the EORA input-output database to calculate the volume of bilateral trade and break down total trade into components related to trade types (intermediaries, finished goods, raw materials and trade in services). We look at the HEDG index based on APT products for these different types of trading. The empirical results are presented in Table 5. The results of columns (1) and (2) show that APTs with a higher degree of openness have a significant positive advertising effect on trade in intermediate and final products. Given that the estimated coefficients are 0.0408 and 0.030, which means that with a product-related scope of PTA 1, the maximum advertising effect of the implementation of APTs on trade in intermediate goods is 4.185%. The maximum advertising effect on trade in finished products is 3.045%. APTs can help countries sell finished products and thus promote the well-being of countries, and be integrated into GMCs through trade in intermediate goods, suggesting that product liberalization brought about by APTs can foster the development of the global production network.
Countries can sign trade agreements that cover a wider range of products in order to better integrate with GVCs and promote their business development. In addition, conclusions on the different effects of PTA_ratio on trade in services and trade in final products are presented in columns (3) and (4) of Table 5. The results showed that regional agreements on trade in services significantly promote trade flows with coefficients of 0.0436 and 0.0411 respectively. This means that the maximum promotional effect of EIA on trade in services is 5.527% and the maximum promotional effect on commercial goods is 4.185%. APTs cover tariff barriers and “New Age” business such as foreign direct investment, services, labour and environmental standards. The promotion of trade in services by TPAs shows that high-level TPAs help countries to open up more widely and improve their overall trade status. To verify our results, we also added other APT metrics and compared them to the product-based coverage index in our robustness tests. In particular, we added depth and flexibility variables in robustness testing to monitor cooperation beyond tariff reductions in the areas of trade in services, investment, standards, government procurement, competition and intellectual property rights.
We download the depth and flexibility variables from the website (www.designoftradeagreements.org/downloads/). Dür et al. [5] used two different measurements to operationalize the depth of APTs. The first measure of depth is an additive index that combines seven key determinations that can be contained in APTs, and the second is based on the analysis of latent characteristics (depth_rasch) [5]. Baccini et al. [6] measured the flexibility (flexescape) of APTs by their content and found that a positive relationship between depth and flexibility applies to APTs. Our work focuses on market access for apt-provided products, and we expect the product-based APT coverage index to have a significant positive effect on bilateral trade with other APT measures. To understand the prevalence of TPAs, the first question to ask is: “Why are countries participating in preferential liberalization?” To understand the large number of studies that have attempted to answer this question, I divide them into two groups: studies that deal with the macro-basis of PTA education and studies that deal with the micro-basis of PTA education. In general, these studies are based on the results of theoretical models showing that APTs improve well-being, either because they solve the externalities of the terms of trade (Bagwell & Staiger 1999) or because they allow governments to engage in domestic demand for protection (Maggi & Rodriguez-Claire 2007).
Other researchers have studied how TPAs affect bilateral trade and conclude that TPAs could influence bilateral trade through trade creation and distraction effects [13-16]. Scientists have found that the effects of trade creation (increased trade due to relative efficiency) may be greater than the effect of trade diversion (increased trade due to preferences) [17, 18]. Some researchers believe that APTs are incompatible with an important principle of the multinational trading system and lead to unfair trading practices in trade disciplines [19-24]. TPAs have become a very attractive aspect of the international trading system [25] and, according to the World Bank (2018) [26], TPAs are currently the central theme of many policymakers and academics. APTs pave the way for “deep” economic integration through tariff elimination. APTs are flexible and product-based APT coverage can vary widely. Most existing studies on the impact of TPAs on bilateral trade mainly use dummy variables to measure whether countries share TPAs [27-29]. Some scientists use the depth variable and have found that the depth of APTs is important for bilateral trade [5]. Scientists studied the impact of APTs on intermediation from the perspective of GMCs and found that APTs can facilitate activity in the supply chain. When breaking down bilateral trade into different components, they focus primarily on the average impact of GPAs on CPGs (using a dummy variable to measure APTs) and the impact of provisions related to services, investment and competition on CPMs [30-32]. Based on the product-based coverage of APTs and the examination of their impact on different types of trade, this makes sense in the global production network. In addition, some researchers have attempted to identify the heterogeneous effects of different APTs on trade development and have found that different APTs may have different effects on bilateral trade [33].
However, most studies focus on the average effect of APTs. In addition, there is insufficient knowledge of product market access that TPAs bring to the table through trade between different types of members. In summary, the development of product-based APT coverage and the examination of the impact of product-based APT coverage on different types of bilateral trade can bridge the literature gap by showing how product market access affects bilateral trade. To control for factors that could disrupt the estimate, we added year-adjusted effects and country-by-country effects. In column (2) of Table 2, we added fixed country pair effects for the control of all potential factors between countries. In this regression, the impact of TPAs on bilateral trade is again positive and significant at 1%. However, we found that the marginal effect of TPAs on bilateral trade increased from 0.165 (as shown in column 1) to 0.038 (as shown in column 2), meaning that if we control more matched country factors, the marginal effect decreases. .