Free trade agreements and domestic value added in exports: An analysis from the network perspective

The free trade agreement (FTA) has become a significant manifestation of economic globalization. While previous studies have examined the trade and welfare effects of FTAs, there has been limited literature focusing on assessing the economic impact of the FTA network. Using a sample of 60 countries from 2007 to 2017, we estimate the causal effects of the FTA network weighted by bilateral FTA depth on domestic value added (DVA) in exports applying the structural gravity model. The empirical evidence shows that the FTA network has significant trade creation effects on DVA. And this pro-effect varies among different countries, regions, and sectors. Moreover, the labor market readjustment, the industrial structure transformation, and the production length extension are essential channels through which the FTA network facilitates DVA. Our findings highlight that the selection of FTA partners should be based on bilateral characteristics as well as on the structure of the FTA network.