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Ceteris paribus, if the share of intermediates in production is high eg. 80% than
this may be harder to achieve, as it requires more use of domestic intermediates
comprising domestic value added. Hence we would expect a positive correlation
between ROO restrictiveness and the share of intermediates to output. However,
it is important to not that this is only relevant for those industries in which the
value added rule is applied, hence in the regressions we also include an interaction
terms between this variable, and the proportion of 6-digit industries with the more
aggregate industry class for which the VA rule is applied.
7. Share of intermediate imports out of total imports; Here we divide imports of each
industry into intermediate and final goods (on the basis of the BEC classification,
and then reaggregate up to the ISIC classification). If intermediate imports are
high (and if they are then used in the same sector as the final goods exports) than
once again, it may be difficult to meet the value added criterion. Hence high
intermediate imports may be associated with a more restrictive ROO, and we
would expect a positive coefficient. However this may not be the case if the
intermediates are then used in other sectors. Once again principally applies to
those industries where the VA criterion is used and therefore in the regressions we
have interacted this term with our CA variable as in (5) above.
4.3 Results
For these regressions we have estimated the ROO and ROO+TD coefficients using
the gravity model described earlier – however in this case our estimations are crosssection
regression, and are undertaken for each year of the sample. In this case then
the ROO and ROO+TD coefficients provide an estimate for any given year of the
extent to which trade is lower between countries both of which have a free trade
agreement with the EU, but which do not have the possibility of diagonal cumulation
between themselves. We then take the estimated ROO and ROO+TD coefficients
from these first stage regressions, as our dependent variables, and consider the role of
the explanatory variables discussed above.
Table 5 below, summarises the expected sign on the coefficients on the basis of the
preceding discussion:
Table 5: 2nd Stage variables and the expected coefficient sign
Variable Expected coefficient
EU tariff +
Partner tariff + or -
Exp / output +
Exports to EU / total exports +
Intermediates / output +
Share of intermediate imports + or -
Type of ROO na