Bilateral Effects of Rules of Origin on Global Value Chains in Chemical and Chemical Industries: Evidence from India’s Trade with Newly Industrialised Economies

The present research explores bilateral impacts of rules of origin (RoOs) in free trade agreements (FTAs) on the global value chain (GVC) involvement in the chemical industry with a particular emphasis on India’s trade with newly industrialised economies (NIEs). The analysis is carried out with data in the OECD-TiVA and WITS databases for the years 2000–2020, with which the modified gravity model is estimated using PPML as the base estimator, and we report estimates of random-effects GLS as an alternative specification as a measure of robustness. The findings show that stringent RoOs lead to a reduction in the backward GVC participation of India by 0.24% on average and forward participation by 0.15% on average, which indicates that complex origin criteria are trade-diverting mechanisms. On the other hand, simplified RoO provisions are linked with the increased intra-industry interconnections in the NIEs. The research has the novelty of incorporating an RoO Restrictiveness Index into a gravity approach to the issue and the identification of the role of RoOs in sectoral GVC participation—an approach that has hardly been addressed in the context of lower-middle income economies. Policy implications emphasise that RoO design and harmonisation across FTAs need to be flexible to enable the integration of India into the production networks at the regional and global levels. JEL Codes: F1, F2, F6