German Development Institute / Deutsches Institut für Entwicklungspolitik (DIE)
Do environmental provisions in trade agreements make exports from developing countries greener?
Environmental provisions in preferential trade agreements (PTAs) are increasing in terms of their number and variety. The economic effects of these environmental provisions remain largely unclear. It is, therefore, necessary to determine whether the trend to incorporate environmental provisions in PTAs counteracts the goal to spur economic development through trade via these PTAs. This is the first article in which the trade effects of environmental provisions in PTAs are thoroughly investigated. The spotlight is put on developing countries for which the assumed trade-off between economic development and environmental protection is particularly acute. This article buses a new fine-grained dataset on a broad range of environmental provisions in 680 PTAs, combined with a panel of worldwide bilateral trade flows from 1984 to 2016. We show that environmental provisions can help reduce dirty exports and increase green exports from developing countries. This effect is particularly pronounced in developing countries with stringent environmental regulations. By investigating how environmental provisions in PTAs affect trade flows, this article contributes to the literature on the following topics: international trade and the environment; design and impacts of trade agreements; and greening the economy in developing countries. It also shows that the design of trade agreements matters. Environmental provisions can be used as targeted policy tools to promote the green transformation and to leverage synergies between the economic and environmental effects of including environmental provisions in trade agreements.Read more ›
Vietnam at a crossroads: engaging in the next generation of global value chains
Vietnam is a lower-middle–income country and, like many of its peers, faces the challenge of upgrading to higher value-added tasks in global value chains (GVCs). Participation and upgrading are not an arbitrary policy objective: both may be of decisive importance for Vietnam’s future economic development path. While the economy currently is highly competitive in relatively low-skilled, labor-intensive tasks, history has shown that wages eventually will rise and this comparative advantage will erode. In order to avoid the middle-income trap—where a country can compete neither in low value-added stages due to rising labor costs nor in higher value-added stages due to a lack of adequate skills and technologies—the Vietnamese government has embarked on a path toward deeper integration with the world economy. While other middle-income countries hesitate, Vietnam is signing deep preferential trade agreements (PTAs) with economic heavyweights such as the EU, the United States, and Japan. However, committing to the comprehensive rulebooks of today’s PTAs is not a guarantee for good GVC performance and requires accompanying policy initiatives at the domestic level.Read more ›
Do trade and investment agreements lead to more FDI? Accounting for key provisions inside the black box
The previous literature provides a highly ambiguous picture on the impact of trade and investment agreements on FDI. Most empirical studies ignore the actual content of BITs and RTAs, treating them as “black boxes”, despite the diversity of investment provisions constituting the essence of these agreements. We overcome this serious limitation by analyzing the impact of modalities on the admission of FDI and dispute settlement mechanisms in both RTAs and BITs on bilateral FDI flows between 1978 and 2004. We find that FDI reacts positively to RTAs only if they offer liberal admission rules. Dispute settlement provisions play a minor role. While RTAs without strong investment provisions may even discourage FDI, the reactions to BITs are less discriminate with foreign investors responding favorably to the mere existence of BITs.Read more ›