Trade Performance of Free Trade Zones

Abstract

Free trade zones (FTZ) have become widespread with the liberalisation of international trade andinvestment. They are a key player in the deepening of the global value chain (GVC). However, little isknown about their contribution to world trade due to a lack of information on their location and status.This paper sets out to improve knowledge in this area by analysing the trade performance of FTZcountries at macro-level with a focus on FTZ externalities and distortive costs. We have built anoriginal database of FTZs where we define them as processing zones benefiting from import tariffincentives. We show that FTZs raise trade only by easing the negative impact of protection. Asimporters of components and raw materials, they raise the rest of the world’s exports. This confirmsthe contribution of FTZs to the GVC. This result is robust to a change in the model specification,errors and bias due to data collection issues and sample composition.

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