Firms and Global Value Chains: Identifying Firms' Multidimensional Trade Preferences

Article Abstract:
Trade policy has become increasingly multidimensional. Current trade agreements not only address market access but also encompass rules and provisions related to flexibility of commitment, investment protection, and dispute settlement mechanisms. Yet, rigorous evidence about how interest groups evaluate each policy measure in relation to others remains scarce. We develop a firm-level theoretical framework to explain how firms’ international operations affect their preferences on different trade policy measures. We experimentally evaluate preferences over multiple policy dimensions using a conjoint analysis on firms in Costa Rica. Notably, for many types of firms, the standard trade policy measures of yesteryear — tariffs and subsidies — are no longer their most important concerns. Instead, the degree of firms’ involvement in global value chains shapes their preferences. Multinational corporations care most about protection of their foreign investments. Strong dispute settlement procedures are most valued by exporters who are not central to global supply networks. Finally, preferences over these policy dimensions are more likely to vary by firm, not by industry, challenging the conventional focus on inter-industry distinctions in the literature.