TRADE CREATION EFFECTS ON GLOBAL VALUE CHAINS: A CASE STUDY OF BRICS

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.