Competitiveness vs. Compliance: How Trade Provisions Affect Micro, Small, and Medium-Sized Enterprises in Global Value Chains?

Abstract Theory supports two opposing trajectories regarding the effects of trade provisions on micro, small, and medium-sized enterprises (MSMEs) and on their integration into the global value chain (GVC). On the one hand, provisions such as increased competitiveness, networking support, and cooperation provisions enhance firms’ GVC participation. On the other hand, provisions that establish common standards and regulations that increase compliance costs can be burdensome for small enterprises. This paper examines the effect of such MSME-related provisions on participation in GVCs. By merging the World Trade Organization trade agreements and the World Bank Enterprise Surveys datasets, we contribute to the literature in two ways. First, we distinguish between trade-related and non-trade-related provisions. Second, we scrutinize the heterogeneity across sectors, income levels, and regions. Our results show a particularly positive effect of MSME-related provisions, with a larger effect of non-trade-related provisions compared with trade-related ones. In addition, this effect is particularly relevant to low-technology-intensive sectors, low-income countries, and Asian economies. Our results remain consistent when using alternative variables, sample characteristics, and estimation methods.