Determinants of global value chain participation in regional trade agreements: the case of Regional Comprehensive Economic Partnership (RCEP)

Abstract

Globally, the share of Global Value Chain (GVC) trade currently accounts for around 70% of total trade. In Regional Comprehensive Economic Partnership (RCEP) region, around 46% of the total trade involves GVC trade. Besides, RCEP is the first agreement between China, Japan and South Korea. Given the important positioning of RCEP member countries like Japan, China, South Korea and Vietnam in factory Asia and prominent GVC assembly hubs, this paper examines the determinants of GVC participation in RCEP bloc by employing fixed effects regression method over a period of 1995–2018. The paper also explores the impact of the level of development of the member countries on GVC participation. Latest GVC measures provided by OECD Tiva, 2021 edition are used. The degree of openness to trade and economic freedom positively impacts backward participation rate whereas FDI inflows exerts negative influence on forward participation rate of RCEP countries. However, the developing countries within RCEP appears to have benefitted from FDI inflows, as it significantly affects their forward participation rate in positive direction in relation to their developed counterparts. Similarly, the positive impact of trade openness on backward participation is more pronounced in RCEP member countries with a developing country status relative to developed countries.