Coverage and enforceability of investment rules in PTAs: what role for global value chain trade and regulatory differences?

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1 Coverage and enforceability of investment rules in PTAs: what role for global value chain trade and regulatory differences? Workshop on Governance and Integration through Free Trade Agreements Dominique Bruhn ( Deutsches Institut für Entwicklungspolitik & ETH Zürich) London, 01 July 2015

2 Motivation More common Proliferation of deep PTAs, often including investment provisions More important? Nexus of trade and investment in global value chains More controversial: Hot debate on policy space in the context of deep PTAs and BITs 2

3 Motivation A glance on the EU No. of PTAs developed countries 6 developing countries 0 no investment investment included investment included & enforceable total Data source: Kohl et al. (2013) 3

4 Hypotheses Countries include investment rules in their PTAs because they trade increasingly within global value chains; some partners have insufficient national investment regulations; other countries do it too; investment is included in their model treaty; it is a trend over time. 4

5 Data and methodology Kohl et al. (2014) dataset for the coding of trade agreements (based on Horn et al., 2010) Alternative: Dür et al. (2014) DESTA database CEPII gravity dataset for contiguity, common language, common colonizor, distance UNTAD-Eora GVC database Alternative: UN comtrade for intermediate goods trade (combination of BEC 111, 121, 21, 22, 31, 322, 42, 53) Quality of government dataset for institutional variables (Teorell et al., 2013) Word Development Indicators UNCTAD for BIT dummy 5

6 Data and methodology binary dependent variable: y 1, 0, y* y* 0 0 probit: y* X N(0, I ) ~ n spatial probit: where W is a weighting matrix based on distances between capitals challenge with spatial probit: observations are not independent! ( I n W ) y* X y* ( I W ) Bayesian MCMC estimation procedure y * Wy * X ~ N(0, In) n y* ~ N(( I n 1 W ) X ( I W ) 1 n 1 1 X,[( In W )'( In W )] ) 6

7 Estimation results Investment included Investment enforceable probit spatial probit probit spatial probit Wy ( ) ( ) GDPdiff *** *** ** ** ( ) ( ) ( ) ( ) DEMOCdiff *** *** ** ** ( ) ( ) ( ) ( ) LEGPROPdiff ( ) ( ) ( ) ( ) CHECKSsum * ( ) ( ) ( ) ( ) PROPENSITY *** *** *** *** ( ) ( ) ( ) ( ) 7

8 Estimation results II... Investment included Investment enforceable probit spatial probit probit spatial probit FDI * ** ( ) ( ) ( ) ( ) FINOPEN * * ( ) ( ) ( ) ( ) GVCsum *** *** *** *** ( ) ( ) ( ) ( ) BIT * * ( ) ( ) ( ) ( ) (Intercept) ** ** ** ** ( ) ( ) ( ) ( ) Gravity variables yes yes yes yes Time dummies yes yes yes yes Obs

9 Wrap-up Countries include investment rules in their PTAs because they trade increasingly within global value chains; some partners have insufficient national investment regulations; other countries do it too; investment is included in their model treaty; it is a trend over time. 9

10 Sensitivity checks Robustness spatial interdependence alternative weighting matrix time trend (period dummies) convergence & dependence on starting values Further steps alternative variable for investment coverage (DESTA) alternative variable for GVC trade (UN comtrade) weighting by economic variables EU as single actor 10

11 Thank you for your attention! Dominique Bruhn German Development Institute / Deutsches Institut für Entwicklungspolitik (DIE) Tulpenfeld 6 D Bonn Telephone: +49 (0) DIE@die-gdi.de 11

12 Motivation A glance on the world The share of PTAs including investment rules ( propensity to include investment ) 12

13 Motivation A glance on the world The share of PTAs including enforceable investment rules ( propensity to include enforceable investment rules ) 13

14 Related literature Gravity variables predict relatively well which countries form a PTA and BIT (e.g. Baier and Bergstrand, 2004; Bergstrand and Egger, 2013) PTAs are very heterogenous (Horn, Mavroidis and Sapir, 2010; Kohl, Brakman and Garretsen, 2013; Dür, Baccini and Elsig, 2014) PTAs are deeper for North-South pairs and countries involved in production network trade (Damuri, 2012; Orefice and Rocha, 2013) Contagion effects / competitive diffusion (Egger and Larch, 2008; Baldwin and Jaimovich, 2012; Baccini, Dür and Elsig, 2012; Baccini and Dür, 2013; Neumayer, Nunnenkamp and Roy, 2014) 14

15 Bayesian MCMC Define prior, approximate posterior, simulate, obtain estimates Obtain joint posterior density from (diffuse) prior and likelihood function analytically unknown! f ( y*,, y)? Use conditional posteriors of the parameters and Metropolis- Hastings-within-Gibbs sampling to approximate joint posterior f ( y*,, y), f ( y*,, y), f ( y*,, y) 15

16 References (I) Baccini, L. / A. Dür (2012): The New Regionalism and Policy Interdependence, in: British Journal of Political Science 42 (01), (2013): Investment Discrimination and the Proliferation of Preferential Trade Agreements, in: Journal of Conflict Resolution. Baccini, L. / A. Dür / M. Elsig (2012): The Politics of Trade Agreement Design: Depth, Scope and Flexibility, The Political Economy of International Organizations. Baier, S. L. / J. H. Bergstrand (2004): Economic determinants of free trade agreements, in: Journal of International Economics 64 (1), Baldwin, R. (1995): A domino theory of regionalism, in: R. Baldwin / P. Haaparanta / J. Kiander (eds.), Expanding European Regionalism: The EU's New Members: Cambridge University Press. Baldwin, R. / D. Jaimovich (2012): Are Free Trade Agreements contagious?, in: Journal of International Economics 88 (1), Bergstrand, J. H. / P. Egger (2013): What determines BITs?, in: Journal of International Economics 90 (1), Dür, A. / L. Baccini / M. Elsig (2014): The Design of International Trade Agreements: Introducing a New Database, in: Review of International Organizations forthcoming. Egger, P. / M. Larch (2008): Interdependent preferential trade agreement memberships: An empirical analysis, in: Journal of International Economics 76 (2),

17 References (II) Horn, H. / P. C. Mavroidis / A. Sapir (2010): Beyond the WTO? An Anatomy of EU and US Preferential Trade Agreements, in: The World Economy 33 (11), Kohl, T. / S. Brakman / H. Garretsen (2013): Do Trade Agreements Stimulate International Trade Differently? Evidence from 296 Trade Agreements, in: CESifo Working Paper No Neumayer, E / P. Nunnenkamp / M. Roy (2014): Are stricter investment rules contagious? Host country competition for foreign direct investment through international agreements, Kiel Working Paper No Orefice, G. / N. Rocha (2013): Deep Integration and Production Networks: An Empirical Analysis, in: The World Economy 37 (1), ; online: Shingal, A. / P. Egger (2014): Determinants of services trade agreements: Regulatory incidence and convergence, in: Working Paper

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Text-As-Data Analysis of Preferential Trade Agreements

Text-As-Data Analysis of Preferential Trade Agreements Julia Seiermann (UNCTAD & IHEID) Joint work with Wolfgang Alschner (University of Ottawa) and Dmitriy Skougarevskiy (IHEID & European University at