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TRADE CREATION EFFECTS ON GLOBAL VALUE CHAINS: A CASE STUDY OF
BRICS
SHAMEEM C C
ccshameem@gmail.com
Assistant Professor, Department of Arts, Koneru Lakshmaiah. Education Foundation (Deemed to
University, Vaddeswaram, Guntur (DT), Andhra Pradesh (India).
AISHA IBRAHIM MOHAMMED
aishasukoon@gmail.com
PhD. Scholar, School of Social Sciences, Cochin. University of Science and Technology,
Ernakulam, Kerala (India)
G. VENKATESWARLU GUNNA
drgvenkatswaralu@kluniversity.in
Assistant Professor, Department of Arts, Koneru. Lakshmaiah Education Foundation,
Vaddeswaram, Guntur (Dt), Andhra Pradesh, (India)
Abstract
Over the last twenty years, international trade and production have increasingly been
structured around what is commonly known as Global Value Chains (GVCs). The trade volume
of BRICS significantly centers on Global Value Chains (GVCs) or Global Supply Chains. In this
regard, the institutional frameworks of BRICS concerning FDI inflows and foreign exchange
reserves have positively influenced trade creation among BRICS nations, thereby affecting
the Global Value Chains. This paper aims to examine the directional trade flows of BRICS and
its intra-trade volume in relation to global value chains. Firstly, the institutional changes within
BRICS (FDI inflow and foreign exchange reserves) can enhance merchandise trade among
BRICS countries. Secondly, there is an increase in merchandise trade outflows from BRICS,
and finally, an increase in service trade outflows from BRICS. The first and third findings can
be interpreted as trade creations resulting from the rise in foreign exchange reserves and FDI
inflows in BRICS nations, along with rules of origin acting as an implicit trade barrier for
imports from the rest of the world. Understanding the Global Value Chains is crucial for
comprehending the third finding regarding the increase in trade flows from BRICS. The
primary factor driving the rise in outflows is the necessity of the complementarities of value
chains for the importation of intermediates by BRICS members.
Keywords
Global Value Chains, Trade Creation, Trade Diversion, and BRICS.
Resumo
Nos Ășltimos vinte anos, a produção e o comĂ©rcio internacional tĂȘm-se estruturado cada vez
mais em torno do que Ă© comummente conhecido como Cadeias de Valor Globais (CVG). O
volume de comércio dos BRICS centra-se significativamente nas Cadeias de Valor Globais
(CVG) ou nas Cadeias de Abastecimento Globais. Neste contexto, os quadros institucionais
dos BRICS relativos aos fluxos de IDE e Ă s reservas cambiais influenciaram positivamente a
criação de comércio entre as naçÔes dos BRICS, afetando assim as Cadeias de Valor Globais.
Este artigo tem como objetivo examinar os fluxos comerciais direcionais dos BRICS e o seu
JANUS.NET, e-journal of International Relations
e-ISSN: 1647-7251
VOL. 17, NÂș. 1
May 2026, pp. 304-323
Trade Creation Effects on Global Value Chains: A Case Study of Brics
Shameem C C, Aisha Ibrahim Mohammed, G. Venkateswarlu Gunna
305
volume de comércio intra-BRICS em relação às cadeias de valor globais. Em primeiro lugar,
as mudanças institucionais no seio dos BRICS (fluxos de IDE e reservas cambiais) podem
potenciar o comĂ©rcio de mercadorias entre os paĂses dos BRICS. Em segundo lugar, verifica-
se um aumento nas saĂdas de comĂ©rcio de mercadorias dos BRICS e, finalmente, um aumento
nas saĂdas de comĂ©rcio de serviços dos BRICS. A primeira e a terceira conclusĂ”es podem ser
interpretadas como criaçÔes de comércio resultantes do aumento das reservas cambiais e dos
fluxos de IDE nos paĂses do BRICS, juntamente com as regras de origem que atuam como
uma barreira comercial implĂcita para as importaçÔes do resto do mundo. Compreender as
Cadeias de Valor Globais Ă© crucial para entender a terceira conclusĂŁo relativa ao aumento dos
fluxos comerciais dos BRICS. O principal fator que impulsiona o aumento das saĂdas Ă© a
necessidade de complementaridades das cadeias de valor para a importação de produtos
intermédios pelos membros dos BRICS.
Palavras-chave
Cadeias de Valor Globais, Criação de Comércio, Desvio de Comércio e BRICS.
How to cite this article
C, Shameem C, Mohammed, Aisha Ibrahim & Gunna, G. Venkateswarlu (2026). Trade Creation
Effects on Global Value Chains: A Case Study of Brics. Janus.net, e-journal of international
relations, VOL. 17, NÂș. 1, May 2026, pp. 304-323. https://doi.org/10.26619/1647-7251.17.1.16
Article submitted on 27 December 2024 and accepted on 17 September 2025.
JANUS.NET, e-journal of International Relations
e-ISSN: 1647-7251
VOL. 17, NÂș. 1
May 2026, pp. 304-323
Trade Creation Effects on Global Value Chains: A Case Study of Brics
Shameem C C, Aisha Ibrahim Mohammed, G. Venkateswarlu Gunna
306
TRADE CREATION EFFECTS ON GLOBAL VALUE CHAINS: A CASE
STUDY OF BRICS
SHAMEEM C C
AISHA IBRAHIM MOHAMMED
G. VENKATESWARLU GUNNA
Introduction
The evolving architecture of the global economy has been profoundly shaped by the rise
of regional economic cooperation and the fragmentation of production across borders.
Over the past three decades, the expansion of Global Value Chains (GVCs) has
transformed international trade from the exchange of finished goods to the exchange of
intermediate inputs, services, and knowledge. In this context, trade creation the process
through which economic integration leads to the replacement of higher-cost domestic
production with lower-cost imports from partner economies has become a central
mechanism linking regional cooperation with global production networks. The emergence
of the BRICS grouping, comprising Brazil, Russia, India, China, and South Africa, has
added a new dimension to this transformation by reshaping trade flows, investment
patterns, and production linkages among major emerging economies.
Since the early 2000s, BRICS countries have experienced rapid economic growth,
increased industrial capacity, and expanded participation in international trade. Their
growing share of global GDP, manufacturing output, and foreign direct investment has
strengthened their position within global production systems. However, beyond their
individual economic performance, the collective integration of BRICS economies has
created new opportunities for trade creation within the bloc. By reducing trade barriers,
promoting investment cooperation, and strengthening institutional coordination, BRICS
has facilitated the expansion of intra-bloc trade in intermediate goods, technology, and
services. These developments have significant implications for GVC participation, as
increased intra-regional trade can enhance specialization, reduce production costs, and
foster deeper integration into global production networks. The relationship between trade
creation and GVC participation is particularly important for emerging economies. Trade
creation within BRICS can stimulate industrial upgrading, encourage technology
diffusion, and improve competitiveness in global markets. At the same time, it may alter
JANUS.NET, e-journal of International Relations
e-ISSN: 1647-7251
VOL. 17, NÂș. 1
May 2026, pp. 304-323
Trade Creation Effects on Global Value Chains: A Case Study of Brics
Shameem C C, Aisha Ibrahim Mohammed, G. Venkateswarlu Gunna
307
the geographical distribution of value addition by shifting production stages among
member countries. Understanding how BRICS-driven trade creation influences GVC
integration is therefore crucial for evaluating the broader role of SouthâSouth cooperation
in the global economy.
The rise of Global Value Chains (GVCs) is a dominating feature of the recent evolution in
the structure of international trade. In the OECD, the import content of exports increased
by 63% between 1995 and 2011, reaching a value of 24.3% on average
1
. This
internationalisation of production through global value chains calls for a revaluation of
the effects of regional trade agreements (RTA) on trade flows. In reality, about 70% of
international trade today involves global value chains (GVCs), as services, raw materials,
parts, and components cross borders often numerous times. Once incorporated into final
products they are shipped to consumers all over the world
2
. The Exports from one country
to another often involve complex interactions among a variety of domestic and foreign
suppliers. Even more than before, trade is determined by strategic decisions of firms to
outsource, invest, and carry out activities wherever the necessary skills and materials
are available at competitive cost and quality (OECD)
3
.
Data Base and Methods
This study adopts a quantitative and empirical research design to examine the trade
creation effects of BRICS and their implications for Global Value Chain (GVC) integration.
The analysis relies on secondary macroeconomic and trade datasets compiled from
internationally recognized databases, including ITC, World Bank, International Monetary
Fund, UN Comtrade, OECD, and UNCTAD. These sources provide consistent and
comparable cross-country indicators required for longitudinal and panel analysis. The
study covers the five BRICS economies; Brazil, Russia, India, China, and South Africa
over the period 2000â2024, capturing the phase of rapid economic expansion and
deepening economic cooperation among member states.
To evaluate trade creation and GVC participation, the study uses a panel dataset
consisting of trade, macroeconomic, and institutional indicators. The key dependent
variable is intra-BRICS trade intensity, measured through bilateral merchandise trade
flows among BRICS members. Complementary indicators of GVC participation are
derived from FDI inflows among the BRICS. These variables capture the degree to which
BRICS economies participate in fragmented global production networks.
The independent variables include FDI inflows, and intra-BRICS trade growth.
Institutional indicators such as trade policy interventions on the are incorporated as
control variables to account for structural factors affecting trade and production
integration among the BRICS. The empirical strategy combines descriptive statistics,
and trade trend analysis. Initially, descriptive analysis is conducted to identify patterns
in intra-BRICS trade growth, and FDI patterns of the flow among the BRICS. This is
1
For some countries such as Luxembourg or Belgium, imports make up more than a third of their exports. See
data https://data.oecd.org/trade/import-content-of-exports.html
2
OECD Information, https://www.oecd.org/trade/topics/global-value-chains-and-trade/
3
OECD Information, https://www.oecd.org/trade/topics/global-value-chains-and-trade/
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Trade Creation Effects on Global Value Chains: A Case Study of Brics
Shameem C C, Aisha Ibrahim Mohammed, G. Venkateswarlu Gunna
308
followed by correlation analysis to explore the relationships between trade integration,
FDI flow, and GVC participation indicators.
To estimate trade creation effects, the study employs a simple regression model intends
to analyse the directional trade flows of BRICS and its intra-trade volume towards the
global value chains, along with support of foreign currency reserves and FDI Inflows as
independent variables. This framework explains bilateral trade flows as a function of
economic size, geographic and economic distance, and institutional factors. The model is
extended to include BRICS integration variables to capture intra-regional trade effects.
Through this mixed-method quantitative approach, the study provides a rigorous
empirical basis for assessing how trade creation within BRICS influences participation in
Global Value Chains.
Literature Review
Estimating the effects of regional trade agreements requires building a counterfactual
world. There are two main approaches: using a structural model to simulate the
counterfactual as in Caliendo and Parro (2015), or using gravity equations to predict the
counterfactual as in Carrere (2006), Magee (2008), Baier and Bergstrand (2007) and
Baier and Bergstrand (2015). This paper is closely related to Magee (2008), which
estimates the effects of trade agreements using a panel of 133 countries from 1980 to
1998. Also closely related is Carrere (2006), who uses a gravity model to assess trade
creation and trade diversion effects. Our contribution comes from the broader coverage
of Regional Trade Agreements and countries, our focus on the effect of RTA on inflows to
and outflows from the region, and on the account of the role of Global Value Chains. Also
related is Baier and Bergstrand (2007) and Baier and Bergstrand (2015) who address
the problem of endogeneity related to free trade agreements and trade flows by using
panel data and average treatment effects (ATEs). They find positive estimates and
conclude that free trade agreements increase membersâ international trade.
Anderson and Yotov (2016) refer to a gravity model to estimate the effects of trade
agreements on terms of trade and global efficiency. They face two main problems:
heteroscedasticity in trade flows data and indigeneity due to the two-way causality. To
address the first one, they use the Poisson pseudo maximum likelihood (PPML). To
address the second one, they introduce two variables, one for trade agreements between
countries with low most-favoured-nation tariffs (MFN), the other for trade agreements
between countries with high MFN tariffs. They find an increase in the global efficiency of
manufacturing trade over the period 1990-2002.
The behaviour of trade flows following a regional trade agreement is also impacted by
the depth of the agreement, as analysed in Mattoo et al. (2019). Using a sample of 96
countries for the period 2002-2014, they show that deep agreements lead to more trade
creation and less trade diversion than shallow agreements. Additionally, beyond
complementarity in trade policy, GVCs also create strong interdependence of GDP
fluctuation at business cycle frequency and are associated with network propagation
effects of any reform aiming at reducing the cost of cross-country trade.2 Moreover, the
segmentation of production across countries also has significant implications for the
magnitude of estimated trade elasticities (Amiti et al. (2014), de Soyres et al. (2018)).
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Trade Creation Effects on Global Value Chains: A Case Study of Brics
Shameem C C, Aisha Ibrahim Mohammed, G. Venkateswarlu Gunna
309
Finally, Estevadeordal et al. (2008) study the impact of regional trade agreements on
trade liberalization towards non-members. Focusing on Latin American countries, they
found âcomplementary effectsâ in the sense that a preferential tariff reduction leads to a
reduction in the external tariff. Freund and Ornelas (2010) provide an insightful review
of the literature on regionalism. The empirical findings of this paper, combined with
theories of optimal trade policy suggest two opposing forces towards greater global
integration: the response of trade flows to an RTA gives members an incentive to reduce
trade barriers towards non-members; however, it gives non-members an incentive to
increase trade barriers towards the region. The incentive for members to lower trade
barriers echoes the literature on multilateralism (Estevadeordal et al. (2008), Bagwell
and Staiger (1999)).
Theoretical and Conceptual Framework
The concept that "trade creates geography" is particularly significant when analysed
within the framework of BRICS (Brazil, Russia, India, China, and South Africa), as this
bloc exemplifies how the expansion of trade relationships can alter both regional and
global economic landscapes. Historically, the geography of global trade was primarily
influenced by North America and Western Europe. Nevertheless, the swift increase in
intra-BRICS trade and their integration into global value chains has facilitated the rise of
new economic centers throughout the Global South. The surge in trade among BRICS
nations has encouraged the development of major ports, industrial corridors, logistics
networks, and financial hubs in cities like Shanghai, Mumbai, SĂŁo Paulo, and
Johannesburg, demonstrating how trade flows actively reshape spatial economic
patterns. As trade between BRICS countries has intensified, companies have started to
relocate production to areas that offer larger markets, lower labour costs, and improved
infrastructure. This shift has resulted in significant accumulation effects, especially in the
manufacturing and services sectors, leading to the creation of new "core regions" within
emerging economies. For instance, China and India have evolved into key manufacturing
and services centers, drawing in investments and establishing solid industrial clusters
that link suppliers, producers, and global markets. These trends exemplify how trade has
transformed economic geography by moving the focal points of production and
consumption towards emerging economies. The BRICS experience also underscores the
development of new SouthâSouth trade corridors, which diminish reliance on
conventional NorthâSouth trade routes. Investments in infrastructure, digital
connectivity, and financial collaboration such as development banking and currency
cooperation, have boosted regional integration and adopted alternative economic order.
As these systems expand, new trade routes and production centers continue to arise,
reinforcing the notion that geography is shaped by trade. In this regard, BRICS illustrates
how the expansion of trade influences geographical progress.
Findings and Analysis
The BRICS FDI inflows significantly influenced on its intra BRICS trade volume. The BRICS
formed 2009, the period of post global financial crisis the bellow figure gave the evidence
of the BRICS institutional arrangements on FDI inflows leads to increase the intra BRICS
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VOL. 17, NÂș. 1
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Trade Creation Effects on Global Value Chains: A Case Study of Brics
Shameem C C, Aisha Ibrahim Mohammed, G. Venkateswarlu Gunna
310
trade volume which exhibits trade creation on global value chains. The detailed analysis
is given below.
Figure 1. The BRICS FDI and Intra BRICS Merchandise Trade Volume (Values in Billion USD)
Source: ITC Calculation based on UNCOMTRADE, ITC Statistics, and BRICS Joint Statistical
Report 2020.
https://www.trademap.org/Country_SelProduct_TS.aspx?nvpm=1%7c%7c6757%7c%7c%7cTOT
AL%7c%7c%7c2%7c1%7c1%7c2%7c2%7c1%7c3%7c1%7c1%7c1
In the above figure 1 illustrates the impact of FDI inflows on the Intra BRICS merchandise
trade volume. From 2002, Intra-BRICS merchandise trade volume were 71.73 Billion
USD and the volume had increased up to 473.4 Billion USD in the year 2008. This data
depicts pre-BRICS era wherein the intra BRICS trade volume had been positively
influenced by the FDI inflows devoid of any institutional arrangements. During this period,
the BRICS FDI inflow share had substantially increased from 79.99 Billion USD to 211.33
Billion USD. After the formation of the BRICS i.e., post BRICS, the Intra BRICS
merchandise trade volume had significantly risen due to an increase in the FDI inflows
among the BRICS countries. In the year 2009, Intra BRICS merchandise trade volume
stood at 406.05 Billion USD along with FDI inflows at 175.04 Billion USD.
The period of 2010- 2018, the intra BRICS merchandise trade volume increased from
569.25 to 905.69 Billion USD. Similarly, the imports also increased from 358.54 to
552.42 Billion USD. The institutional arrangements on FDI inflows have influenced by
increasing of Intra BRICS trade volume, which makes massive volume of trade creation
in this group. The FDI inflows during this period constantly maintained at same pace with
211.19 Billion USD. The bilateral trade negotiations, the BRICS New Development bank
financial assistances on transport sectors (9.56 Billion USD), Urban development projects
(3.69 Billion USD), ICT projects (300 Million USD), and Multiple areas projects (2.15
Billion USD) are major factors positively influenced on Intra BRICS trade volume.
0
200
400
600
800
1000
1200
FDI Inflows Intra BRICS Trade
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Trade Creation Effects on Global Value Chains: A Case Study of Brics
Shameem C C, Aisha Ibrahim Mohammed, G. Venkateswarlu Gunna
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In the period of COVID-19 pandemic, the BRICS intra trade volume have played
significant role on their economic recoveries. The BRICS emergency programme loan for
economic recovery (6 Billion USD), and Emergency assistance programme in combating
COVID-19 (6 Billion USD). The above economic recovery assistance by New Development
Bank platform necessitated 2 Billion USD on each BRICS member states. Under this
platform total distributed 12 Billion USD financial assistances on combating on COVID-
19 situation. The COVID pandemic period of 2019 -21 data shows that intra BRICS
exports increased from 354.49 to 451.26 Billion USD. The intra BRICS trade volume
increased from 886.45 to 1104 Billion USD. The intra BRICS trade volume increased this
situation because of the BRICS emergency loan, and economic assistance programme
under the new development bank institutional arrangement. The BRICS FDI inflows
increased from 226.14 to 327.31 Billion USD in 2019-20 period. In this pandemic
uncertainties, the BRICS institutional involvement on the basis of New development bank
projects, Emergency loan, and FDI inflows have greatly influenced the intra trade volume
and economic recoveries. The increase in the FDI inflows leads to creation of intra BRICS
trade volume on global value chains.
The BRICS Foreign Exchange Reserve and Trade Creation on GVCs
The BRICS group have contributed to the largest level of foreign exchange reserve which
consist of 4.75 Trillion USD in 2021. The BRICS foreign exchange reserve have influenced
its inter BRICS merchandise trade volume over the years. The below figure illustrates the
relations of foreign exchange reserve and inter BRICS Merchandise Trade volume.
Figure 2. The BRICS Foreign Exchange Reserve and Inter Merchandise Trade Volume (Values in
Billion USD)
Source: ITC Calculation based on UNCOMTRADE, ITC Statistics, and BRICS Joint Statistical
Report 2020.
https://www.trademap.org/Country_SelProduct_TS.aspx?nvpm=1%7c%7c6757%7c%7c%7cTOT
AL%7c%7c%7c2%7c1%7c1%7c2%7c2%7c1%7c3%7c1%7c1%7c1
0
1000
2000
3000
4000
5000
6000
7000
8000
Trade Outflows from BRICS Foregin Exchange Reserve
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Trade Creation Effects on Global Value Chains: A Case Study of Brics
Shameem C C, Aisha Ibrahim Mohammed, G. Venkateswarlu Gunna
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The above figure 2 illustrates inter BRICS merchandise trade relations, in the case of
inter BRICS merchandise trade volume (2002-2008) increased from 1041.37 to 4337.1
Billion USD. Similarly, BRICS Foreign Exchange Reserve also increased from 268.41to
2894.32 Billion USD during this period. The BRICS foreign exchange reserve act as
catalyst and boost external trade sector of BRICS.
In the period of 2009-18, inter BRICS merchandise trade volume increased from 3527.78
to 6760.3 Billion USD, and in the case of BRICS foreign exchange reserve increased from
3335.18 to 4739.25 Billion USD. The inter BRICS trade volume and foreign exchange
reserve have helped the BRICS economy at a greater level to recover these nations from
global financial crisis, and Eurozone crisis.
In the case of pandemic period (2019-21), inter BRICS trade volume increased from
6616.18 to 7933.52 Billion USD. In the case of BRICS foreign exchange reserve volume
increased from 4573.54 to 4755.3 Billion USD. The above data portray BRICS as an
institution that is actively engaged in the global volume of trade and global value chains
on merchandise trade. The BRICS have succeeded to combat global financial crisis, and
Eurozone crisis certain level.
In the case of the BRICS merchandise exports share contribution on world exports
increased in the period of 2002-08. The percentage of exports share increased from
8.80% in 2002) to 14.73% in 2008 (see table 5 in the appendix part). The period of 2009
-2018, same tendency also exhibited from 15.28 (2009) % to 18.63% (2018). In the
period of pandemic (2019-21) BRICS exports share increased from 18.96 % (2019) to
20.07% (2021) on over World merchandise trade exports volume.
In the case of the BRICS merchandise imports share contribution on world imports
increased in the period of 2002-08. The percentage of imports share increased from
7.15% in 2002 to 12.08% in 2008 (see the table 6 in the appendix part). The period of
2009-18, the imports contribution share increased from 12.94% (2009) to 16.04%
(2018). In the period of pandemic (2019-21), the BRICS imports share increased from
15.99% (2019) to 16.52% (2021) on over World merchandise trade imports volume. To,
conclude that the BRICS contributed total merchandise trade share on global trade
volume reached 10.01% in 2021, 18.09 % in 2020, and 17.43% in 2019. This evidence
clearly marked that the BRICS actively participated during the pandemic on global value
chains and global supply chains of the trade in merchandise.
The BRICS FDI Inflows and Trade Creation on GVCs
The BRICS FDI inflows significantly influenced on its inter BRICS service trade volume.
The bellow figure gave the evidence of the BRICS institutional arrangements on FDI
inflows leads to increase the intra BRICS service trade volume which exhibits trade
creations on global value chains. The detailed analysis is given bellow.
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Trade Creation Effects on Global Value Chains: A Case Study of Brics
Shameem C C, Aisha Ibrahim Mohammed, G. Venkateswarlu Gunna
313
Figure 3. The BRICS FDI Inflows and Inter BRICS Service Trade (Values in Billion USD)
Source: ITC, UNCTAD, WTO trade in services database based on Eurostat, International
Monetary Fund, BRICS Joint Statistical Report 2020, Organisation for Economic Co-
operation and Development (OECD) and relevant national statistical authorities statistics
https://www.trademap.org/Country_SelProductCountry_TS.aspx?nvpm=1%7c%7c6757
%7c%7c6757%7cTOTAL%7c%7c%7c2%7c1%7c1%7c2%7c2%7c1%7c3%7c1%7c1%7c
1
The above figure 3, depict inter BRICS service trade relations, in the case of inter BRICS
service trade volume (2002-2008) increased from 198 to 756 Billion USD. Similarly,
BRICS Foreign Direct Investment Inflows also increased from 79.99 to 211.33 Billion USD
during this period. The BRICS FDI inflows boost inter BRICS service trade volume such
that the economy revives as a result of the pandemic shocks wherein the global value
chains can positively benefit from such trade creations.
In the period of 2009-18, inter BRICS service trade volume increased from 684 to 1475
Billion USD, and in the case of BRICS FDI inflows increased from 175.04 to 211.19 Billion
USD. The inter BRICS service trade volume and FDI inflows have helped the BRICS
economy at a greater level to recover these nations from global financial crisis, and
Eurozone crisis.
In the case of pandemic period (2019-21), inter BRICS service trade volume decreased
from 1473 to 1372 Billion USD. In the case of BRICS FDI inflows volume reached 327.31
Billion USD in 2020. The economic system suffered a major setback as most parts of the
world were forced into a complete lockdown due to the ongoing fatal contagion, causing
a major decline in employment, output, and service trade. The Inter BRICS service trade
volume assists in the economic recovery of these economies from pandemic
uncertainties.
In the case of the BRICS service exports share contribution on world service exports
increased in the period of 2005-10. The percentage of exports share increased from
7.29% in 2005 to 9.86% in 2010 (see table 7 in the appendix part). The period of 2011
-2018, same tendency also exhibited from 10.13 (2011) % to 9.74% (2018). In the
period of pandemic (2019-21) BRICS exports share increased from 9.80 % (2019) to
11.42% (2021) on over world service trade exports volume.
0
200
400
600
800
1000
1200
1400
1600
FDI Inflows Inter BRICS Service Trade
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Trade Creation Effects on Global Value Chains: A Case Study of Brics
Shameem C C, Aisha Ibrahim Mohammed, G. Venkateswarlu Gunna
314
In the case of the BRICS service imports share contribution on world imports increased
in the period of 2005-10. The percentage of imports share increased from 8.75% in 2005
to 11.99% in 2010 (see the table 8 in the appendix part). The period of 2011-18, the
imports contribution share increased from 12.96% (2011) to 15.30% (2018). In the
period of pandemic (2019-21), the BRICS service imports share decreased from 14.59%
(2019) to 11.56% (2021) on over world service trade imports volume. To, conclude that
the BRICS contributed total service trade share on global trade volume reached 11.49%
in 2021, 12.59 % in 2020, and 12.03% in 2019. This evidence clearly marked that the
BRICS actively participated during the pandemic on global value chains and global supply
chains of the trade in service.
The paper postulated the following hypotheses based on the literature and theoretical
explanations. Firstly, the institutional changes in the BRICS (FDI Inflow, FDI Outflow,
and Foreign Exchange Reserve) can increase the trade within the BRICS countries,
secondly; a decrease in the trade outflows, and finally; an increase in the trade inflows.
The following functional model can represent the three hypotheses mentioned above.
Change in trade within the BRICS = f [BRICS Institutional Arrangements]
Change in Trade Inflows to the BRICS = f [BRICS Institutional Arrangements]
Change in Trade outflows from the BRICS = f [BRICS Institutional Arrangements]
Table 1. Correlation between Institutional Arrangements and BRICS Trade
FDI Inflows
FDI
Outflows
Foreign Exchange
Reserve
Intra BRICS Trade
0.32
0.90
0.97
Inter BRICS Service Trade
0.30
0.91
0.94
Trade Outflows from BRICS
0.35
0.90
0.97
In the first hypothesis, it is expected that institutional arrangements can positively impact
the trade within BRICS, meaning that trade within BRICS will increase along with FDI
inflow and Foreign Exchange reserve, and trade will decrease with an increase in FDI
outflow. To test the same, a multiple linear regression was performed. The model is as
follows:
Î Trade within BRICS= f [Î FDI Inflows, Î FDI Outflow, Î Foreign Exchange Reserve]
The regression result is explained in Table 1. It shows the model is significant where the
R squared value is 0.93 and the model F value is less than 0.05. With respect to individual
coefficients, it expects a positive relationship between Trade within BRICS and FDI inflow
and Foreign Exchange Reserve with a statistical significance. However, the regression
result revealed that both have a positive relationship with Trade within BRICS with no
statistical significance where their corresponding p-values are greater than 0.05. On the
other hand, we expect a negative relationship between Trade within BRICS and FDI
outflows, although, it is statistically not significant.
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Shameem C C, Aisha Ibrahim Mohammed, G. Venkateswarlu Gunna
315
Table 2. Regression Analysis of Trade within BRICS and BRICS Institutional
Arrangements
Coefficients
Standard
Error
t Stat
P-value
Intercept
-20.1171571
53.86403
-0.37348
0.714386
FDI Inflows
0.000428431
0.150097
0.002854
0.997763
FDI Outflows
-0.77592637
0.766379
-1.01246
0.328499
Foreign Exchange
Reserve
0.190778916
0.035783
5.331496
0.000106
R Square
0.936754723
Standard Error
78.86251389
Significance F
1.23609E-08 (95%)
The second hypothesis, that is trade Inflow to the BRICS is dependent on BRICS
institutional arrangements (FDI Inflow, FDI Outflow, and Foreign Exchange Reserve). As
done in the first hypothesis test, a similar multiple regression is performed and Table 2
reveals the result. It shows the model is significant where the R squared value is higher
and the F value is less than 0.05. With respect to individual coefficients, it expects a
positive relationship between trade inflows to the BRICS and FDI inflow and Foreign
Exchange Reserve. However, the regression result revealed that Foreign Exchange
Reserve has a positive relationship with Trade within BRICS with a statistical significance
where its corresponding p-values is less than 0.05. As against the hypothesis, the result
shows a negative relationship between Trade inflows to the BRICS and FDI inflows, still,
it is not significant. On the other hand, we expect a negative relationship between Trade
Inflows to the BRICS and FDI outflows, but the result shows a positive relationship with
no statistical significance.
The third hypothesis is trade outflow from the BRICS is dependent on BRICS institutional
arrangements (FDI Inflow, FDI Outflow, and Foreign Exchange Reserve). As done in the
previous analysis, multiple regression is performed and Table 3 reveals the result. It
shows the model is significant where the R squared value is higher and the F value is less
than 0.05. With respect to individual coefficients, it expects a positive relationship
between trade outflows to the BRICS and FDI inflow and Foreign Exchange Reserve with
a statistical significance. However, the regression result revealed that Foreign Exchange
Reserve has a positive relationship with trade within BRICS with statistical significance
where its corresponding p-values is less than 0.05. However, the result shows a positive
relationship between trade inflows to the BRICS and FDI inflows with no statistical
significance. On the other hand, we expect a negative relationship between trade inflows
to the BRICS and FDI outflows, but it is not statistically significant.
Table 3. Regression Analysis of Trade Inflows to the BRICS and BRICS Institutional
Arrangements
Coefficients
Standard
Error
t Stat
P-value
Intercept
149.4699468
111.7667556
1.337338155
0.202435166
FDI Inflows
-0.105916187
0.311449205
-0.340075315
0.738848312
FDI Outflows
1.091043943
1.590221588
0.686095543
0.503857601
Foreign Exchange
Reserve
0.180547784
0.074249775
2.431627373
0.029051999
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Trade Creation Effects on Global Value Chains: A Case Study of Brics
Shameem C C, Aisha Ibrahim Mohammed, G. Venkateswarlu Gunna
316
R Square
0.93775944
Standard Error
163.6381
Significance F
1.10307E-06 (95%)
Table 4. Regression Analysis of Trade outflow from the BRICS and BRICS Institutional
Arrangements
Coefficients
Standard Error
t Stat
P-value
Intercept
519.7003899
312.4668057
1.663217918
0.118484303
FDI Inflows
0.544366005
0.8707199
0.625190724
0.541902914
FDI Outflows
-6.660548235
4.445789422
-1.498169977
0.156294951
Foreign Exchange
Reserve (FER)
1.364212298
0.207580418
6.571970077
1.24529E-05
R Square
0.977
Standard Error
457.483
Significance F
1.17601E-09 (95%)
Conclusion
To conclude that, it is hypothesized that BRICS institutional arrangements have an impact
on intra BRICS trade, inter BRICS service trade, and merchandise trade outflows from
BRICS. The study considers FDI inflows, outflows, and foreign exchange reserves as
proxies for BRICS institutional arrangements. A multiple regression analysis is performed
to assess the impact of institutional arrangements on trade and it developed three models
based on the hypothesis. The regression result revealed that all the three models are fit
and statistically significant, meaning that institutional arrangements can explain the
changes in the BRICS trade. With respect to individual coefficients, the sign of FDI inflow,
outflow, and FER are as expected, however, they are statistically not significant. In the
second test, as against the expectation, FDI inflows had a negative sign and outflows
had a positive sign, which reveals an opposite relationship. Although, the values are
statistically not significant. In the third model, the signs of the coefficients are as
expected, however, only the coefficient of the Foreign Exchange Reserve is statistically
significant. To overall conclude that the BRICS FDI inflows have positively influenced inter
service and intra merchandise trade volumes. In the case of BRICS, foreign exchange
reserve influenced them for inter merchandise trade volume. The above institutional
arrangements on FDI inflows, Foreign exchange reserves made impacts in trade creations
in BRICS group. This would be exhibiting factors of trade creation on global value chains
along with total trade volume 10.4 Trillion USD in 2021 compare with previous year data
of 8.44 Trillion USD volume. There are 1.95 Trillion USD trade volume difference between
2020 and 2021. The above trade creation also good for global value chains and global
supply chains in the era of pandemic. The BRICS contributed total volume of merchandise
trade on 8.73 Trillion USD out of 48.17 Trillion USD world merchandise trade volume in
2024 along with 18.12 % share of global merchandise trade volume. The BRICS also
contributed total service trade on 2.2 Trillion USD out of 20 Trillion USD world service
trade volume in 2024 along with 11 % share of global service trade volume.
The above data demonstrated that the interaction between Foreign Direct Investment
(FDI), intra-BRICS trade, and Global Value Chain (GVC) participation forms a mutually
reinforcing cycle within the BRICS economies. Rising FDI inflows have played a catalytic
role in strengthening production capacity, industrial diversification, and technology
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Shameem C C, Aisha Ibrahim Mohammed, G. Venkateswarlu Gunna
317
transfer across the BRICS. Investment in manufacturing, infrastructure, logistics, and
digital sectors has enhanced productive efficiency and created the necessary conditions
for expanding cross-border production networks.
The findings suggest that FDI acts as a bridge connecting domestic industries with
regional and global markets. Increased investment flows stimulate intra-BRICS trade by
creating demand for intermediate inputs, encouraging supply-chain complementarities,
and facilitating the relocation of production stages across member countries. As firms
expand operations and integrate supply chains within the bloc, trade in intermediate
goods and services grows, reflecting deeper production interdependence.
In turn, the expansion of intra-BRICS trade strengthens GVC participation. Greater
exchange of components, technology, and services allows BRICS economies to move
beyond primary commodity exports toward higher value-added manufacturing and
services. This process contributes to industrial upgrading, improves export
competitiveness, and enhances the position of BRICS within global production
hierarchies. The study therefore concludes that FDI, intra-BRICS trade, and GVC
integration operate as an interconnected triad: FDI enables trade expansion, trade
fosters production linkages, and these linkages deepen integration into global value
chains.
However, sustaining this virtuous cycle requires continued policy coordination, improved
infrastructure, and stronger institutional cooperation to reduce structural asymmetries
among member economies. Strengthening these foundations will enable BRICS to
maximize the long-term developmental benefits of FDI-driven trade creation and to play
a more influential role in the evolving architecture of global value chains.
Overall, the study concludes that BRICS cooperation represents an important driver of
SouthâSouth economic integration and a significant force in the ongoing restructuring of
the global trading system. Strengthening policy coordination, improving logistics and
infrastructure, and promoting innovation-led industrial upgrading will be essential for
sustaining trade creation and enhancing the long-term contribution of BRICS to global
value chains.
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320
Appendix
Figure 5. World Merchandise Exports (Values in Trillion USD)
Year
World
Exports
Inter BRICS
Exports
% of Share
contribution
2002
6.42
0.56
8.80
2003
7.48
0.73
9.82
2004
9.09
0.98
10.85
2005
10.34
1.26
12.27
2006
11.95
1.58
13.23
2007
13.78
1.94
14.09
2008
15.96
2.35
14.73
2009
12.34
1.88
15.28
2010
15.09
2.47
16.42
2011
18.14
3.08
16.97
2012
18.39
3.20
17.41
2013
18.85
3.40
18.08
2014
18.85
3.47
18.42
2015
16.41
3.15
19.20
2016
15.92
2.92
18.37
2017
17.56
3.23
18.39
2018
19.33
3.60
18.63
2019
18.76
3.55
18.96
2020
17.49
3.49
19.94
2021
22.14
4.65
21.00
2022
24.68
5.08
20.58
2023
23.64
4.69
19.83
2024
23.92
4.87
20.35
Sources: ITC calculations based on UN COMTRADE and ITC statistics,
https://www.trademap.org/Country_SelProduct_TS.aspx?nvpm=1%7c%7c%7c%7c%7cTO
TAL%7c%7c%7c2%7c1%7c1%7c2%7c2%7c1%7c2%7c1%7c1%7c1
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Trade Creation Effects on Global Value Chains: A Case Study of Brics
Shameem C C, Aisha Ibrahim Mohammed, G. Venkateswarlu Gunna
321
Table 6. World Merchandise Imports (Values in Trillion USD)
Year
World
Imports
Inter BRICS
Imports
% of Share
contribution
2002
6.60
0.47
7.15
2003
7.70
0.62
8.11
2004
9.39
0.84
9.00
2005
10.61
1.02
9.68
2006
12.26
1.26
10.33
2007
14.11
1.57
11.16
2008
16.34
1.97
12.08
2009
12.62
1.63
12.94
2010
15.33
2.23
14.60
2011
18.37
2.84
15.46
2012
18.52
2.95
15.93
2013
18.86
3.07
16.29
2014
18.92
3.03
16.03
2015
16.56
2.50
15.13
2016
16.07
2.34
14.56
2017
17.80
2.74
15.42
2018
19.67
3.15
16.04
2019
19.10
3.05
15.99
2020
17.72
2.88
16.26
2021
22.45
3.85
17.14
2022
25.30
4.32
17.07
2023
23.94
3.80
15.87
2024
24.25
3.86
15.91
Sources: ITC calculations based on UN COMTRADE and ITC statistics,
https://www.trademap.org/Country_SelProduct_TS.aspx?nvpm=1%7c%7c%7c%7c%7c
TOTAL%7c%7c%7c2%7c1%7c1%7c2%7c2%7c1%7c2%7c1%7c1%7c1
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Trade Creation Effects on Global Value Chains: A Case Study of Brics
Shameem C C, Aisha Ibrahim Mohammed, G. Venkateswarlu Gunna
322
Table 7. World Service Exports (Value in Trillion USD)
Year
World Service
Trade Exports
Inter BRICS
Service Exports
% of Share
Contribution
2005
2.55
0.18
7.29
2006
3.02
0.23
7.61
2007
3.62
0.30
8.36
2008
4.06
0.36
9.08
2009
3.64
0.32
8.81
2010
3.96
0.39
9.86
2011
4.45
0.45
10.13
2012
4.58
0.46
10.15
2013
4.87
0.48
9.86
2014
5.23
0.49
9.53
2015
4.99
0.47
9.52
2016
5.07
0.46
9.24
2017
5.52
0.52
9.43
2018
6.07
0.59
9.74
2019
6.21
0.60
9.80
2020
4.96
0.56
11.42
2021
7.31
0.64
8.75
2022
8.35
0.82
9.82
2023
8.18
0.81
9.90
2024
9.27
0.91
9.81
Source: ITC, UNCTAD, WTO trade in services database based on Eurostat, International
Monetary Fund, Organisation for Economic Co-operation and Development (OECD) and
relevant national statistical authorities statistics,
https://www.trademap.org/Service_SelService_TS.aspx?nvpm=1%7c%7c%7c%7c%7c%
7c%7cS00%7c1%7c3%7c1%7c2%7c2%7c1%7c5%7c1%7c1%7c1
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Trade Creation Effects on Global Value Chains: A Case Study of Brics
Shameem C C, Aisha Ibrahim Mohammed, G. Venkateswarlu Gunna
323
Table 8. World Service Imports (Values in Trillion USD)
Year
World Service
Trade Imports
Inter BRICS
Service
Imports
% of Share
Contribution
2005
2.51
0.22
8.75
2006
2.95
0.26
8.93
2007
3.49
0.33
9.55
2008
3.95
0.38
9.78
2009
3.55
0.36
10.22
2010
3.86
0.46
11.99
2011
4.31
0.55
12.96
2012
4.46
0.61
13.84
2013
4.71
0.68
14.60
2014
5.13
0.78
15.33
2015
4.88
0.73
15.02
2016
4.91
0.73
15.04
2017
5.31
0.80
15.05
2018
5.77
0.88
15.30
2019
5.92
0.86
14.59
2020
4.65
0.65
14.15
2021
7.12
0.83
11.65
2022
8.12
0.95
11.69
2023
9.82
1.12
11.40
2024
10.08
1.08
10.71
Source: ITC, UNCTAD, WTO trade in services database based on Eurostat, International Monetary
Fund, Organisation for Economic Co-operation and Development (OECD) and relevant national
statistical authorities statistics,
https://www.trademap.org/Service_SelService_TS.aspx?nvpm=1%7c%7c%7c%7c%7c%7c%7cS
00%7c1%7c3%7c1%7c1%7c2%7c1%7c5%7c1%7c1%7c1
