Table 5. Labor productivity and trade

|**Dependent**<br>**variable**|**Specification**|**Regressors**|**Average effect**<br>**(1)**|**Differential effect for**<br>**developing East Asia**<br>**(2)**|
|---|---|---|---|---|
||**1**|**log of gross imports**<br>**log of gross exports**|0.0752***<br>(0.0212)<br>0.0838***<br>(0.0172)|‐0.0483<br>(0.0632)<br>‐0.0541<br>(0.0606)|
|**ity**||**log of gross final imports**|‐0.0185<br>(0.0128)|‐0.0917**<br>(0.0382)|
|**ductiv**|**2**|**log of gross intermediate imports**|0.141***<br>(0.0238)|0.0847<br>(0.0768)|
|**bor pro**||**log of gross final exports**|0.0161<br>(0.0198)|‐0.131*<br>(0.0689)|
|**g of la**||**log of gross intermediate exports**|0.0429**<br>(0.0214)|0.0395<br>(0.0654)|
|**lo**||**log of gross final imports**|‐0.0266*<br>(0.0161)|‐0.107**<br>(0.0496)|
||**3**|**log of FVA embodied in domestically‐absorbed output**|0.0879***<br>(0.0182)|0.0622<br>(0.0518)|
|||**log of FVA embodied in exports (GVC backward part.)**|0.140**<br>(0.0581)|0.138<br>(0.183)|

Notes: FVA stands for “foreign value added”. Specification 1 relates labor productivity to gross imports and gross exports. Specification 2 relates labor productivity to gross imports and gross exports by type of product (final and intermediates). Specifications 1 and 2 are estimated using the Ordinary Least Squares (OLS) estimation. Specification 3 relates labor productivity to three components of gross imports. It is estimated using Instrumental Variables (IV) estimation, where GVC backward participation is instrumented by the average value added originating from Germany, Japan and the United States that is embodied in the exports of three countries in the sample that have the most similar per capita income to the country in question. Regressions are run at the country, year and sector level and include controls for the log of capital stock per employee as well as the following fixed effects: country‐industry; country‐year and industry‐year. Column (1) displays coefficients of trade indicators (denoting average effect across countries, sectors and years) from regressions that do not account for a differential effect for developing East Asia. Column (2) displays coefficients of trade indicators interacted with developing East Asia dummy variable from regressions that account for a differential effect (average effects from these regressions are similar to average effects reported in column (1). Standard errors indicated in parenthesis; * p<0.10, ** p<0.05, *** p<0.01. Number of observations ranges between 8,368 and 8,700. R‐squared: 0.985. Sample is restricted to manufacturing sectors excluding manufacturing of coke, refined petroleum and nuclear fuel.

# **d. Shallow and fragmented trade agreements**

The trade policy framework in which developing East Asian countries operate has changed over time. By 2013, with the entry of Lao PDR, all developing East Asian countries had become members of the WTO. Indonesia, Malaysia, Myanmar, the Philippines and Thailand have been members since the start in 1995, followed by Mongolia in 1997. China entered the WTO in 2001, Cambodia in 2004 and Vietnam in 2007. In addition, as further documented below, developing East Asian economies are members of several preferential trade agreements (PTAs). The combination of multilateral, regional and (often) unilateral trade policy reforms has dramatically 43