How do digital trade rules affect global value chain trade in services?—Analysis of preferential trade agreements

Abstract

As international trade practices continue to develop, more than half of all international service trade has been digitised, with digital trade rules becoming a key factor affecting the development of global value chain (GVC) service trade. This study constructs the depth and scope indicators of digital trade rules included within preferential trade agreements (PTAs). We then investigate the role that digital trade rules play in promoting service trade along GVC using a gravity model framework. From our analysis, we find that both the depth and the scope indicators of digital trade rules have a significant promotional effect on GVC service exports, with the impact on GVC forward service exports being greater than the impact that was felt on GVC backward service exports. We also find that the GVC trade promotion effect is affected by income level, types of PTAs and the differences in regulatory quality that exist between countries. Finally, by developing a dynamic model that includes a set of leads and lags for digital trade rules' variables, we find that the impact of digital trade rules on GVC trade in services has both an anticipation and phasing‐in effect.