Trade Creation Effects on Global Value Chains:A Case Study of BRICS

Abstract

Over the past two decades, international trade and production have become increasingly organised around what is commonly referred to as the Global Value Chains(GVCs). The BRICS trade volume greatly revolves around Global Value Chains (GVCs) or Global Supply Chains. In this context, BRICS institutional arrangements on FDI inflows, Foreign exchange reserves have positively impacted trade creation from BRICS countries thereby influencing the Global Value Chains.  This paper intends to analyse the directional trade flows of BRICS and its intra trade volume towards the global value chains. Firstly, the institutional changes in the BRICS (FDI Inflow, and Foreign Exchange Reserve) can increase the merchandise trade within the BRICS countries, Secondly; an increase in the merchandise trade outflows from BRICS, and finally; an increase in the service trade outflows from BRICS. The first and third findings can be understood as trade creations due to increase in Foreign Exchange Reserve, and FDI inflows in the BRICS countries, and Rules of origin as an implicit trade barrier for imports from the rest of world. The Global Value Chains are most relevant to understand the third findings on the increase in trade flows from the BRICS. The key determinant of the increase in outflows is the imperative of the complementarities of value chains for imports of intermediates by member of the BRICS.