The impact of regulatory heterogeneity on global value chain-related trade

In this paper, I estimate the impact of heterogeneity in non-tariff-measures (NTMs) policies on countries' global value chains (GVCs)-related trade and its backward and forward components. I firstly build a regulatory distance (RD) index, which measures the degree of dissimilarity in NTMs structures between two trade partners. By including the RD index in a structural gravity model, I then find a significant negative effect of regulatory distance on total, backward, and forward GVC-related trade. The negative impact results to be even stronger when I conduct the analysis only on manufacturing sectors. On the country dimension, I demonstrate that the effects of regulatory distance are associated with the exporters' and the importers' income levels.