DP5144 Preferential Trade Arrangements and the Pattern of Production and Trade when Inputs are Differentiated

Author(s): Joseph Francois
Publication Date: July 2005
Keyword(s): industry location, rules of origin, trade in intermediates, trading costs
JEL(s): F13, F15
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=5144

This paper is concerned with rules of origin when intermediate goods are differentiated. An analytical model emphasizes trade patterns and the relative importance of trade in intermediates given trade preferences. Econometric evidence based on intra-OECD trade in motor vehicles and motor vehicle parts points to a systematic impact of trade costs and FTA membership, following from rules of origin and reduction in border measures, on the role of intermediates and their relative importance in production and trade. These results are consistent with a conceptual framework involving rules-base trade costs and two-way trade in differentiated intermediate goods and final goods.