# **C Supplemental Results**

This appendix provides supplemental results. Section C.1 presents robustness checks related to estimation of Equation (16). Section C.2 presents instrumental variables estimates of Equation (19).

## **C.1 Robustness Checks for Domestic Value Added**

In this section, we perform two checks on our baseline estimates.

First, we demonstrate that our main results regarding the role of domestic value added are robust to how we define reciprocal trade agreements. To so so, we replicate results from Tables 2 and 3 using a broader definition of RTAs. This broader definition, introduced in Appendix B [Section B.2.2 and Table B1], includes bilateral agreements adopted under Article XXIV plus comprehensive agreements not arising under Article XXIV.

In columns (1)-(3) of Table C1, we repeat the inside versus outside RTA analysis from Table 2. As before, the negative influence of DVA on tariffs manifests itself exclusively outside RTAs. Further, in columns (4) and (5), we show that the point estimate on DVA is negative in this alternative no-RTA sample, comparable in size to the main point estimates. We conclude that the exact definition of RTAs has little bearing on our analysis. Nonetheless, we retain non-Article XXIV agreements in our baseline no-RTA sample throughout the paper, because adoption of these is itself a manifestation of discretionary trade policy.

Second, we show that our baseline DVA results are robust to adding bilateral controls to proxy for potential omitted confounding variables. The first control we add is log bilateral final goods imports. In column (2) of Table C2, the coefficient on exports is significant, but the point estimate on log DVA is unchanged relative to the baseline. This implies that imports are essentially orthogonal to log DVA, given the controls. This is sensible, since we have already removed a substantial component of import variation by interacting import decile indicators with the importer-industry-year fixed effects.

The second set of controls are measures of bilateral characteristics (often used as proxies for trade costs in the gravity literature), including distance, colonial linkages, common language, and contiguity (common border).<sup>72</sup> We do this to rule out that omitted variables (either the proxies themselves, or variables that are correlated with the proxies) spuriously drive our results.

In Table C2, columns (3)-(6) report OLS estimates and columns (7)-(10) report IV estimates with DVA-in-Services as the instrument. As is evident, the coefficient on log DVA remains negative and significant after adding these controls, while the proxy variables themselves are almost never significant.

> 72We obtain these variables from the CEPII GeoDistance Database: `http://www.cepii.org/CEPII/fr/ bdd_modele/presentation.asp?id=6` . One complication is that these characteristics pertain to individual bilateral country pairs, but we have a composite non-country entity (the EU) in our data. We therefore define bilateral characteristics vis-a-vis the EU by taking GDP-weighted averages of bilateral characteristics defined for each individual EU country. This implies that colonial linkages, common language, and contiguity are not strict indicator variables, as their weighted averages can lie between zero and one when the EU is a trading partner.

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