engleski

Regional production networks, foreign direct investments and trade patterns: The CEFTA 2006 case

This series of papers uses modern trade theories in order to explain development of regional production networks from the point of view of Croatian firms and industries. Moreover, the trade and foreign direct investment (FDI) flows and patterns within production networks are analysed and explained. Croatia, as the Central European Free Trade Agreement 2006 (CEFTA) member, is analysed during 2000-2012 period, because of the unique position which Croatia occupied during this period. On one hand, Croatia signed Stabilization and Association Agreement (SAA) with European Union in 2001, which enabled Croatian firms’ tariff free access on the EU market, but also opened domestic markets for imports from the EU. On the other hand, Croatia in 2006 signed CEFTA 2006 agreement. Although, Croatia became member of “original” CEFTA that was formed back in 1992 by Visegrád Group countries, in 2003, membership in “new” CEFTA was of particular importance for Croatia, since most member countries were ex-Yugoslavia member states. In the first paper, theoretical review of production networks, regional economic integration and FDI flows is given. We merge different strands of these theories, thus creating formal background for empirical research of regional production networks. Moreover, in order to define vertically specialized firms, we combine firm and industry level data and modify existing methodology. We build the empirical model, where we explain trade flows within vertically specialized firms as a function of aforementioned free trade agreements (RTA), FDI stocks and flows, and interaction between RTAs dummies and FDI variables. Estimation results show that CEFTA impact on trade patterns within production networks is stronger that the impact of SAA. Moreover, impact of different FDI variables is relatively subdued. In the second paper we use industry level gravity model in order to estimate impact of adoption of the Rules of Origin (RoO) which enabled diagonal cumulation (DC) between Croatia, other CEFTA 2006 countries and European Union, on the trade flows. We emphasize the importance of the RTA-RoO-DC channel, which affects positively trade within production networks. Our results show that positive effects of CEFTA on trade flows are increased more after enabling of diagonal cumulation between beforementioned integrations. Moreover, we confirm heterogeneous impact of trade liberalization induced by DC on different product groups defined by Broad Economic Categories classification, namely intermediate, consumption, and capital goods. In the third paper the development of intensive and extensive trade margins on product-country level data for Croatia during from 2000 to 2012 is researched. We claim that RTAs-induced trade liberalization will have heterogeneous effects on particular product groups with indirect implications on national welfare. We use static and dynamic gravity trade models on panel data accounting for over 90% of total trade during the observed period. Results show that while SAA and CEFTA arrangements positively affected different measures of intensive and extensive trade margins, specially exports and imports of consumption products, effects on trade in intermediate and capital goods was relatively subdued. This doctoral dissertation contributes to the field of knowledge in several ways. It synthetises and tests theories of production networks, regional economic agreements and FDI flows in the case of Croatian firms. It uses industry, firm and product level data in order the test theoretical predictions of aforementioned theories. This is to the best of my knowledge, the first paper that deals with this topic. Moreover, paper contributes to the existing theory by testing and proving that trade liberalization caused by regional trade agreements has heterogeneous effects on intensive and extensive trade margins and different product groups, classified according to BEC classification. These effects are measured and presented in the dissertation for the case of Croatia during 2000-2012 period.

production networks; foreign direct investment; trade

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