BEYOND CONVENTIONAL TRADE: TRADE OPENNESS IMPLICATIONS OF TRADE IN VALUE ADDED

Abstract

This study compares the impacts of gross trade openness measures with trade openness in value-added measures on economic growth for the years 1995-2014 by employing a dynamic panel data estimation. Our findings suggest that although gross trade shares promote growth, using value-added trade shares magnifies this positive effect. Compared with gross terms, estimates also imply that while exports in value-added terms have much larger growth effect, imports in value-added terms have no significant impact. We then evaluate the impacts of tariffs on growth in terms of gross trade and trade in value added separately. Although our results imply the negative growth effects of gross import tariffs, this negative impact disappears for tariffs in value-added terms. These results reaffirm that trade protectionism has potential to lower global growth through reducing exports because it is clear that export shares regardless of their measurements and disaggregation levels promote growth. Our results indicate that countries should support not only exports of final products but also exports of intermediates. However, given the necessity of imports for exports, our results do not lend any evidence to discourage overall imports.