Table <u>5:</u> CAFTA GVCs

||(1)|(2)|(3)|(4)|(5)|(6)|(7)|(8)|
|---|---|---|---|---|---|---|---|---|
||Tradegoods|Finalgoods|Inputs|DVA|Trad. trade|GVCFP|GVCBP|GVCMIX|
|RTA|0.11<sup>_∗∗∗_</sup>|0.10<sup>_∗∗∗_</sup>|0.10<sup>_∗∗∗_</sup>|0.02<sup>_∗∗∗_</sup>|0.02<sup>_∗∗∗_</sup>|0.01|0.01|-0.00|
||(0.02)|(0.02)|(0.02)|(0.01)|(0.01)|(0.01)|(0.01)|(0.01)|
|RTA_×_ CAFTA|0.13<sup>_∗∗∗_</sup>|0.11<sup>_∗∗_</sup>|0.15<sup>_∗∗∗_</sup>|0.07<sup>_∗∗∗_</sup>|0.08<sup>_∗∗∗_</sup>|0.01|0.07<sup>_∗∗_</sup>|0.02|
||(0.04)|(0.05)|(0.04)|(0.03)|(0.03)|(0.02)|(0.03)|(0.04)|
|RTA_×_ CAFTA_×_ US as Exp|-0.28<sup>_∗∗∗_</sup><br>(0.06)|-0.23<sup>_∗∗∗_</sup><br>(0.07)|-0.27<sup>_∗∗∗_</sup><br>(0.06)|-0.16<sup>_∗∗∗_</sup><br>(0.03)|-0.17<sup>_∗∗∗_</sup><br>(0.03)|-0.03<br>(0.03)|-0.16<sup>_∗∗∗_</sup><br>(0.04)|-0.10<sup>_∗∗_</sup><br>(0.04)|
|RTA_×_ CAFTA_×_ US as Imp|-0.16<sup>_∗∗∗_</sup><br>(0.06)|-0.10<br>(0.06)|-0.16<sup>_∗∗∗_</sup><br>(0.06)|-0.03<br>(0.02)|-0.03<br>(0.02)|0.01<br>(0.05)|-0.01<br>(0.03)|-0.00<br>(0.06)|
|TOTAL CAFTA|0.24<sup>_∗∗∗_</sup><br>(0.05)|0.20<sup>_∗∗∗_</sup><br>(0.06)|0.25<sup>_∗∗∗_</sup><br>(0.06)|0.09<sup>_∗∗∗_</sup><br>(0.03)|0.11<sup>_∗∗∗_</sup><br>(0.03)|0.01<br>(0.03)|0.08<sup>_∗∗_</sup><br>(0.04)|0.02<br>(0.04)|
|TOTAL CAFTA - US as Exp|-0.03|-0.03|-0.02|-0.07<sup>_∗∗∗_</sup>|-0.07<sup>_∗∗∗_</sup>|-0.01|-0.08<sup>_∗∗∗_</sup>|-0.07<sup>_∗∗∗_</sup>|
||(0.04)|(0.05)|(0.04)|(0.02)|(0.02)|(0.02)|(0.02)|(0.03)|
|TOTAL CAFTA - US as Imp|0.09<sup>_∗_</sup>|0.11<sup>_∗∗_</sup>|0.09<sup>_∗_</sup>|0.06<sup>_∗∗∗_</sup>|0.08<sup>_∗∗∗_</sup>|0.03|0.07<sup>_∗∗_</sup>|0.02|
||(0.04)|(0.05)|(0.05)|(0.02)|(0.02)|(0.05)|(0.03)|(0.06)|
|Observations|425984|425984|425984|421009|421009|421009|421009|421009|

**Note:** All regressions use the PPML estimator with exporter-time, country-pair and importer-time fixed effects. Border-time controls are included in columns (1) to (3). Robust standard errors, clustered at the country-pair level, are in parentheses. _∗ p <_ 0.10,** _p <_ 0.05,*** _p <_ 0.01

# **5.4 Dynamic effects**

Our last analysis focuses on the CAFTA-DR dynamics since the trade agreement entered into force, studying the phase-in effect on trade. The literature emphasizes that RTAs’ effects evolve over time. The literature notes that the RTA anticipation effects are important, and RTAs have an impact on trade between partners even before entering into force. There are two possible explanations for this result. One is that once an agreement is announced, some firms start to adjust in anticipation of the implementation of the agreement. In addition, it is possible that the potential member countries are already relaxing some administrative measures to reduce trade costs even before the agreement enters into force. Therefore, it is important for econometric models to explicitly allow for anticipation effects, and lags, of RTAs with data that are measured at a sufficiently fine granularity in the time dimension. In the context of CAFTA-DR, as discussed in section 2, member countries already had RTAs in place and started negotiating the agreement in 2001.

Figure (3) shows the dynamics of the CAFTA-DR effect on intra-regional trade, using 3-year leads and the lags up to 9 years after entering into force.<sup>18</sup> Figure (3) shows that by

> 18The number of lags in our case is constrained by the fact that CAFTA-DR entered into force in 2006, and our data covers until 2015. Also, note that the agreement entered into force in 2007 for the Dominican Republic and 2009 for Costa Rica, so we build the leads and lags accordingly, being country-specific.

20