The Impact of Regulatory Distance From Global Standards On A

International Economics 166 (2021) 95–115
Contents lists available at ScienceDirect
International Economics
journal homepage: www.elsevier.com/locate/inteco
The impact of regulatory distance from global standards on a

country’s centrality in global value chains
Tomohiko Inui a, 1, Kenta Ikeuchi b, Ayako Obashi c, Qizhong Yang d, *
a
Faculty of International Social Sciences, Gakushuin University, Japan
b
Research Institute of Economy, Trade and Industry, Japan
c
School of International Politics, Economics and Communication, Aoyama Gakuin University, Japan
d
College of Economics, Aoyama Gakuin University, Japan
A R T I C L E I N F O A B S T R A C T
JEL classification: We examine whether and how a country’s centrality in global value chains (GVCs) is dependent
F13 upon the extent to which its regulatory regime differs from the global norm, using country and
F14 sector-level data from OECD and UNCTAD. We find that the more similar a country’s regulatory
Keywords: regime is to global standards the more likely the country is to play a dominant role in GVCs. Our
Non-tariff measure findings suggest that a country could enhance its centrality in GVCs by harmonising a set of
Regulatory distance
technical regulations to the global standards.
Centrality in global value chains
1. Introduction
Not only firms exporting agricultural and food products, but also exporters of manufactured goods face various technical regulations
and standards on product safety and quality when serving foreign markets. Each country has its own set of regulations for products
distributed in its domestic market. Such cross-country differences in regulations create technical difficulties and compliance cost burden
for firms. The technical difficulties are especially true for exporters based in less developed economies, where regulations tend to be less
stringent overall. Yet, the compliance cost burden is not unrelated to exporters originating from advanced economies either. To comply
with regulations enforced in a particular market, manufacturers may be forced to change their production and distribution processes or
to strengthen the testing of their products.
As corporate activities become more internationalised, manufacturers not only need to comply with regulatory requirements in the
target market of final demand but also in the interconnected economies along the value chain. Therefore, global value chains (GVCs)
make a strong case for regulatory convergence, harmonisation, mutual recognition, and diffusion of international standards (Cattaneo
et al., 2013). Indeed, the lead firms of GVCs rely increasingly on international standards to minimise the complexities of cross-border
transactions along the value chain (Gereffi et al., 2011). In addition, according to a recent business survey in the agri-food sector (OECD
and WTO, 2013), 60% of the lead firms point at the ability of suppliers to meet quality and safety standards as the main factor influ-
encing sourcing and investment decisions in GVCs. Looking at these facts from another angle, countries whose regulatory regime is too
* Corresponding author. College of Economics, Aoyama Gakuin University, 4-4-25 Shibuya, Shibuya-ku, Tokyo, 150-8366, Japan.
E-mail address: u759184c@alumni.osaka-u.ac.jp (Q. Yang).
1
This research was conducted as part of the project of the Economic Research Institute for ASEAN and East Asia (ERIA), ‘Impact of Non-Tariff
Measures on Trade and Competitiveness in East Asia’. The authors are deeply indebted to Kaoru Nabeshima, Shujiro Urata, and the members of
this project for their invaluable suggestions. The opinions expressed in this paper are the sole responsibility of the authors and do not reflect the views
of ERIA. We are responsible for the remaining errors.
https://doi.org/10.1016/j.inteco.2021.03.001
Received 5 July 2020; Received in revised form 12 December 2020; Accepted 2 March 2021
Available online 24 March 2021
2110-7017/© 2021 CEPII (Centre d'Etudes Prospectives et d'Informations Internationales), a center for research and expertise on the world economy.
Published by Elsevier B.V. All rights reserved.
1
T. Inui et al. International Economics 166 (2021) 95–115
different from that of the global norm would be unattractive as investment destinations for the lead firms and might be marginalised
from advancement in the GVC.
Do cross-country differences in the implementation pattern of technical regulations affect the formation and structure of GVCs?
Asian countries’ position within GVCs has changed considerably in recent years. As highlighted in Criscuolo and Timmis (2018a), Japan
has moved away from being in the central position (i.e. higher value of centrality indicator) within Asian value chains and has become
increasingly peripheral within the regional value chains (lower centrality). A centrality metric is a measure of a country’s influence or
connectivity within the by-sector production network across borders. Fig. 1–1 and 1-2 compare forward and backward centrality,
respectively, in the computer, electronics, and optical equipment sector’s GVCs among China, South Korea, and Japan. While Japan’s
centrality declined substantially from 2005 to 2015, China became more central, and South Korea did not experience a large decline in
its centrality during the same period.
In this study, we examine whether and how a country’s centrality in the GVCs of a particular sector is dependent upon the extent to
which its regulatory regime differs from the global norm. We expect that the more similar the national regulatory regime is to global
standards, the more likely it is for the country to play a dominant role in the GVCs. Specifically, a country would be more likely
positioned as a key consumer (supplier) of intermediate inputs and unfinished products for the hubs’ upstream (downstream) in the
文献回顾
NTMs的经济效应
GVC中国际竞争力、参与度和位置
NTMs对GVC贸易的效应
中心度（GVC）
与全球标准的管制距离（国家间管
制距离）
技术法规数据
回归方程
Fig. 1. 1: Forward centrality in the computer, electronics, and optical equipment sector’s GVCs: China, South Korea, and Japan in 2005 and 2015,
1–2: Backward centrality in the computer, electronics, and optical equipment sector’s GVCs: China, South Korea, and Japan in 2005 and 2015.
Source: Authors’ calculations on the OECD Inter-Country Input-Output Tables.
2
GVCs (i.e. backward (forward) centrality) if the importing (exporting) firms face a set of regulations that is less different from global
standards.
To quantify the extent to which a country’s regulatory regime is different from the global norm, we first calculate the regulatory
distance that was originally proposed by Olivier Cadot and his co-authors (Cadot et al., 2015; Cadot and Ing, 2015), by comparing the
implementation pattern of technical regulations between a pair of countries at the sector level. We then approximate the country’s
overall distance from the global standards by taking the value-added weighted average of the bilateral regulatory distances across
trading partner countries. To do so, we utilise the new United Nations Conference on Trade and Development (UNCTAD) non-tariff
measures (NTMs) database, which provides systematically gathered information on a comprehensive set of mandatory and official
regulations (at the time of the data collection) that potentially affect imported (and exported) products. From the UNCTAD database, we
can find a set of different types of regulations enforced in combination by a particular country for particular products/sectors, although
without quantitative information for the stringency of regulations. Therefore, we can summarise the implementation pattern of regu-
lations at the country-product level qualitatively by checking the incidence of each type of regulations.
The remainder of this paper is organised as follows. Section 2 reviews previous related studies. Section 3 introduces the NTM and
GVC centrality data and explains the methodology. Section 4 provides preliminary data observations, followed by an estimation of the
causal effect. The last section discusses the main findings from the estimation results.
2. Literature review
As far as we know, our study is the first to examine the differences of a country’s regulatory regime from the global norm as a
determinant of the country’s centrality in GVCs. Nevertheless, our study is related to previous studies that examine the effects of NTMs
on the trade occurring within GVCs. In a broader sense, our study is also based on the literature on the economic effects of NTMs and on
measuring the international competitiveness of sectors with consideration to GVCs.
2.1. Economic effects of NTMs
During the past decades, there have been an increasing number of trade disputes related to NTMs. The rapid proliferation of NTMs
has prompted numerous studies on their effects on trade and development. While much of the early studies treated NTMs as pure trade
barriers and advocated the removal for welfare improvement, recent studies have documented mostly positive effects on household
income, reduced risk and income variability, technology adoption, and quality of produce (Beghin et al., 2015). Beghin et al. (2015)
made a comprehensive review of the literature on the various effects of NTMs. Studies investigating the effects of NTMs on welfare,
trade, industrial organisation, and labour markets show mixed evidence that NTMs can promote or impede trade and economic growth,
possibly reflecting their complex effects on industries and firms. To understand the complex effects of NTMs, it is important to know how
they affect the organisation and structure of value chains, in particular, the endogeneity of vertical coordination.
2.2. International competitiveness, participation, and position in GVCs
Empirical research on the international competitiveness of manufacturing sectors can be roughly divided into two strands according
to different international trade accounting systems. The first strand relates to the analysis of the traditional trade index. Balassa (1965)
proposed the revealed comparative advantage index to measure the international competitiveness of an industry. Although the original
Balassa (1965) index ignored the import-side factor, later studies further proposed the trade competitiveness index, which looks at the
net trade of an industry with consideration to cross-border fragmentation of production. Hausmann et al. (2007) proposed an index of
the productivity level associated with a country’s specialisation pattern to measure the competitiveness in the international division of
labour. They provided empirical evidence supporting the existence of economically meaningful differences in the specialisation patterns
of otherwise similar countries.
The second strand concerns the analysis of the value-added trade index. Hummels et al. (2001) proposed the (forward and backward)
vertical specialisation index that can be used to measure the country’s participation in GVCs in terms of the international division of
labour. In a similar vein, Koopman et al. (2010) proposed the GVC participation index and the upstreamness index in the GVC network.
These indices have been further developed by Wang et al. (2017), who proposed a pair of the forward and backward GVC participation
indices. Antras and Chor (2013) estimated the average position of a country in GVCs by constructing by-industry upstreamness and
downstreamness indices using the U.S. input and output table.
Meanwhile, recent studies have developed various theoretical frameworks. According to Antras (2019), there are four important
factors that determine a country’s GVC participation, namely, factor endowment, contractual security, market size, and trade costs.
Regarding trade costs, the negative effects of geographical features (e.g. remoteness to tariffs and non-tariff barriers to trade) on trade
flows have been found in several empirical studies. Trade costs, including regulatory burdens, not only hamper a country’s participation
in GVCs but might have a significant effect on its position in GVCs as well.
Recently, Criscuolo and Timmis (2018a) proposed using centrality metrics to measure position in GVCs. The centrality metrics are
defined as Bonacich-Katz eigenvector centrality, which is well known in the field of network analysis, and are measured by coun-
try/industry using data from the International Input-Output Table. Notably, these centrality metrics are associated with a set of
theoretical economic models of propagating economic shock through trading networks originating from Carvalho (2008) and Acemoglu
et al. (2010). For example, Acemoglu et al. (2012) demonstrate theoretically and empirically that countries/industries with high
centrality indicators propagate more productivity shocks to countries/industries downstream of the production process. Furthermore,
3
Criscuolo and Timmis (2018b) demonstrated that changes in centrality in the GVCs of a country/industry positively impact changes in
the productivity of some firms in that country/industry.
2.3. Effects of NTMs on GVC trade
There are only a few studies that assess the impact of NTMs on the pattern of trade and production that are internationally connected
through GVCs. Even empirical research on the general trade effects of NTMs is limited because it is difficult to conduct a systematic study
of NTMs due to the lack of internationally comparable, suitably coded data. Traditionally, the trade restrictiveness of NTMs has been
widely computed as the ad-valorem tariff equivalents (AVEs). More recently, under the GVC paradigm, Ghodsi and Stehrer (2016),
expanding on the conventional AVE exercise of Kee et al. (2009), quantified the cumulative impacts of tariffs and various NTMs through
backward linkages on trade volumes, using the world input–output database. Ghodsi and Stehrer (2016) then assessed the impact of
cumulative trade restrictiveness along the GVCs on the average annual growth of labour productivity at the country–sector level.
Apart from the AVE method, Blind et al. (2018) conducted a simple gravity analysis to assess the impact of product standards on
trade occurring through GVCs in Europe. They differentiated between the country’s adoption of national, regional, and international
product standards and examined their respective effects on trade in value-added and gross trade flows within Europe at the sector level.
They found that countries that comply with European regional standards export more, and that the export-enhancing effect is greater on
the domestic value-added embodied in foreign final demand than on the gross export value. Their findings suggest that the adoption of
regional standards enhances a country’s benefits from participating in regional GVCs.
Empirical evidence of the effect of NTMs on GVC participation has been provided by Franssen and Solleder (2016), who examined
the impact of NTMs on the country’s backward participation in GVCs with a focus on technical measures (i.e. SPS and TBT). They
measured a country’s regulatory distance from the rest of the world using product categories (i.e. intermediates and final consumables)
at the HS (Harmonized System) two-digit sector level, following the approach employed in Cadot et al. (2015) and Cadot and Ing (2015),
and then analysed the impact on final-good exports of the regulatory distance for imported intermediates within the same HS two-digit
sector. A shortcoming of their analytical method is that they boldly assumed that input–output linkages exist only within the HS
two-digit sector.
Relatedly, Shepherd (2016) examined the linkage between trade facilitation and GVC participation by applying the network analysis
method to measure a country’s connectivity to GVCs in two sectors (textiles and clothing and agriculture). Although the author’s focus
was on trade facilitation policies as an important determinant of GVC connectivity, the trade facilitation agenda can be interpreted as an
effort to reduce the costs of compliance with technical measures faced by exporters without undercutting the attainment of regulatory
objectives.
Thus, previous studies have demonstrated some evidence that NTMs affect the international trade and participation of GVCs in their
countries and industries. However, as far as we know, no studies have investigated the effect of NTM on position in GVCs. Considering
the effect of the distance from the global standard of regulation on NTMs, it is expected that it will affect how much the country/industry
participates in international trade and its position in GVCs.
Therefore, this study is the first to investigate the effect of NTMs on their position in GVCs. We focus on centrality as an index to
capture position in GVCs, and the central metrics as indicators of the influence of a country/industry on GVCs as a supplier or customer.2
3. Data and methodology
First, we describe how to construct the GVC centrality indicators. We also describe the data for technical regulations, with which we
measure the country’s regulatory distance from the global norm. We then explain our empirical methodology.
3.1. GVC centrality
Following Criscuolo and Timmis (2018a), we calculate the Bonacich–Katz eigenvector centrality metric using the OECD
Inter-Country Input-Output (ICIO) tables to examine the relative position of each country-sector pair within a GVC network. This
centrality metric takes both direct and indirect linkages into account. The linkages within the GVCs network reflect ICIO flows of goods
and services.3 The centrality is determined not only based on direct trade linkages, but also on the linkages of trade partners. The central
sectors are those that are linked to highly connected sectors; hence, it follows a recursive calculation. It is defined as a baseline centrality
plus a weighted sum of the centralities of downstream or upstream sectors. Thus, the centrality of a sector is determined not only by its
own linkages, but also by its suppliers’ linkages, and its suppliers’ suppliers’ linkages, and so on. See Criscuolo and Timmis (2018a) for
more details on the calculations.
Fig. 2 illustrates a simple example of the centrality metrics. The circles are countries/industries, and the arrows indicate the trade
2
Upstreamness and downstreamness are also used as indicators of position in GVCs. However, these indicators illustrate how much upstream or
downstream the country/industry is in the production process of GVCs. Therefore, centrality is considered to be more closely related to NTMs as an
index of position in GVCs.
3
Instead of the input-output data, other studies have applied the centrality metric to value-added trade data. For instance, Amador and Cabral
(2017) found that consistent with the expansion and deepening of GVCs, the networks of foreign value-added share in exports became denser, more
complex, and intensively connected over time.
4
flow. Compared to B exporting to three partners, A exports to only two partners, but the indicator of (forward) centrality as a supplier is
higher for A than for B. The reason is that the Bonacich–Katz eigenvector centrality is an index that considers direct and indirect links.
While the supply of A spreads to downstream countries/regions through B and C, and the supply of B affects only three directly con-
nected countries/regions, the supply of A affects B and C and all countries/regions considering indirect routes.
We measure backward and forward centrality to disentangle distinctions between key and peripheral customers, and key and pe-
ripheral suppliers, respectively. The backward centrality metric is higher for country-sectors that are major customers of a central hub in
the network. Key suppliers that trade with central hubs in the GVC network have a larger forward centrality. Based on Criscuolo and
Timmis (2018a), we define country-sector level backward centrality, cBackward;h
i , and country-sector level forward centrality, ciForward;h , as
follows:
X U;h Backward;h
cBackward;h
i ¼η þ λ Wij cj ; (1)
j
X
cForward;h
i ¼ η þ λ WijD;h cForward;
j
h
; (2)
j
where WijU;h and WijD;h are upstream and downstream input linkages between country i and country j within sector h, respectively. These
are directly calculated based on the OECD ICIO Tables for each year, and η and λ are the parameters that we have to determine a priori.
Let Zijh denote input flows from country i to country j within sector h; upstream and downstream input linkages are defined as WijU;h ¼
h h
PZij h and WijD;h ¼ PZij h , respectively. The parameter η is a scaling factor; thus, it is less crucial to determine centrality in relative terms.
Z
i ij
Z j ij
We set η at 0.5, following Criscuolo and Timmis (2018a). The parameter λ is the key parameter to determining the importance of
higher-order linkages. λ is usually considered to be less than the reciprocal of the largest eigenvalue of the input linkage matrix, WijU;h and
WijD;h . With λ greater than or equal to the largest eigenvalue, the centrality metric tends to diverge (Zhan, 2017). Therefore we set λ to be
equal to 0.5 times the reciprocal of the largest eigenvalue of the corresponding input linkage matrix.4 Eqs. (1) and (2) can be further
expressed in matrix form as follows:
cBackward;h ¼ η1 þ λW U;h cBackward;h ; (1a)
cForward;h ¼ η1 þ λW D;h cForward;h ; (2b)
where cBackward;h and cForward;h indicate the nx1 vector of backward and forward centralities of each of the n country-sectors, respectively.
W U;h and W D;h are nxn matrices that denote upstream and downstream input linkages between country i and j within sector h. 1 is a nx1
vector of ones. Finally, taking the inverse matrix of Eq. (1’) and (20 ), the backward and forward centralities can be derived as follows:
1
cBackward;h ¼ η I λW U;h 1; (3)
1
cForward;h ¼ η I λW D;h 1; (4)
We also define an overall measure of centrality for each country-sector as the average of backward and forward centrality as follows.
Using the simple average preserves the scale of the units so that allows direct comparison of total centrality with the forward and
backward components.
1 Backward;h
cTotal;h ¼ c þ cForward;h : (5)
i
2 i i
According to Miller and Temurshoev (2017), total forward linkage measures are often used as indicators of a sector’s importance or
keyness in the supply chain. A sector with high total forward linkage is considered a more appropriate target for economic stimulation,
as it is expected to bring more benefit to the entire economy than a sector with lower total forward linkage. Meanwhile, a sector with
high total backward linkage is considered a more suitable target for economic stimulation, because it purchases a significant part of its
inputs in the form of intermediate inputs from other sectors, and this is expected to lead other sectors to also expand their outputs to
meet that sector’s increased intermediate demands.
We construct the country-sector-level GVC centrality measures using the 2018 edition of the OECD Inter-Country Input-Output
(ICIO) tables. The 2018 OECD ICIO tables cover 67 countries (i.e. 37 OECD and 30 non-OECD countries); the rest of the world, with
separate tables for China and Mexico; and 36 sectors for the years 2005–2015.5 One caveat is that while the OECD also provides the
2016 edition of the ICIO tables that covers 1999, we do not merge the older edition with the latest one because the two editions use
4
The value of λ is set at around 0.25. As a robustness check, centrality is also measured using another value of λ, and the analysis results were
compared.
5
The 2018 edition of OECD ICIO tables are available at: https://www.oecd.org/sti/ind/inter-countr y-input-output-tables.htm.
5
different sector classification standards,6 making it difficult to compare the centralities of the same sector over different editions.
Instead, we substitute the 2005 data (i.e., the oldest year in the 2018 edition) for 1999 data to calculate the 1999 centralities.
3.2. Regulatory distance from global standards
The pervasiveness of NTMs on trade has been captured often by calculating incidence indicators such as the so-called coverage ratio
and frequency index (Deardorff and Stern, 1998; UNCTAD, 2018). Using internationally comparable and systematically gathered in-
formation of various NTMs that are available in the new UNCTAD database, we can also examine differences and similarities in reg-
ulatory frameworks between countries. In this regard, Cadot et al. (2015) and Cadot and Ing (2015) propose a simple measure of
regulatory distance that is computed as a standardised number of combinations of products and regulation types (for a pair of countries i
and j at time t) as follows7:
1 X
RDijt ¼ NTMikt NTMjkt ; (6)
k k
where k indicates a particular product-regulation combination. NTMikt is a dichotomous variable equal to one when country i imple-
ments a particular type of regulation on a particular product at time t and zero otherwise. k denotes the (maximum possible) total
number of product-regulation combinations irrespective of actual incidence. In practical terms, the measure of regulatory distance
indicates the proportion of product-regulation combinations that are not equal between a pair of countries. The lower the value of the
measure, the more similar the pair of countries’ regulatory frameworks are.
Following Cadot et al. (2015) and Cadot and Ing (2015), we first compute the regulatory distance measure between a pair of
countries at the ICIO sector level (that corresponds to the ISIC Rev. 4 two-digit codes). Notice that the measure is originally calculated at
the aggregate country-pair level but can be calculated at the sectoral level and on specific types or groups of regulations. Let I h denote a
set of potential product-regulation combinations within sector ℎ. We define the regulatory distance between a pair of countries i and j for
sector ℎ at time t as follows:
1 X
RDhijt ¼ NTMikt NTMjkt ; (7)
kh k2I h
where k indicates a product-regulation combination. kh denotes the total number of product-regulation combinations observed
worldwide (of our sample countries) within sector ℎ.
We then compute the overall regulatory distance of country i’s sector h at time t from the global norm by taking an average of
bilateral regulatory distances of country i across its trading partner country j’s for sector ℎ using the sectoral value-added as weights8:
X
Weighted RDhit ¼ Shjt RDhijt ; (8)
j6¼i
where Shjt is the share of the trading partner country j in the world total value-added of sector h at time t. We weigh the country-sector
level regulatory distance using the value-added share of the partner country rather than the gross trade share because we would like to
measure the global norm of NTMs based on the influence of each country in the world’s value-added trade to avoid double-counting the
country’s influence. Also, using the share of value-added trade is in line with the definition of centrality that we discussed above.
Notice that the regulatory distance measure is, by construction, symmetric for a certain pair of countries. In the current study, we are
interested in examining if the extent to which a country’s regulatory regime is different from the global norm affects the country’s
6
Specifically, the 2016 edition (covering 63 countries and 34 sectors for 1995–2011) is based on ISIC version 3 and the 2018 version is based on
ISIC version 4.
7
There are earlier studies that propose summary indicators to evaluate regulatory differences between countries at the product level as an
alternative to the conventional incidence indicators. For example, Drogue and DeMaria (2012) use Pearson’s distance to measure the dissimilarity
between vectors representing a series of maximum residue levels (MRLs) set on apples and pears. Meanwhile, Winchester et al. (2012) propose a
directional indicator to capture the relative stringency of a series of MRLs that affect animal and plant products in the destination compared with the
origin country of each trade flow. Although these indicators build on the quantitative information of MRLs that affect specific groups of products,
Cadot et al. (2015) and Cadot and Ing (2015) propose the regulatory distance measure based on the qualitative information of the list of various types
of regulations.
8
We base the definition of the regulatory distance on the intuition that a country with a relatively large weight of value-added share is more likely
to connect to other countries so that its NTMs tend to have a larger influence on the global economy, and thus, are a more appropriate consideration
for the ‘global norm’. However, if a country’s large weight of value-added share as a result of an increase in regulation use becomes closer to the
average global regulatory framework, this will raise a potential endogeneity problem. Thus, we alternatively defined a simple measure of the reg-
P N
ulatory distance as follows to examine Eq. (10):Simple RDhit ¼ N1 RDhijt ; (80 )Typically, Simple RDhit is calculated using the simple average of the
j6¼i
regulatory distance with the country’s trade partners. However, the results in Table A5 indicate that Simple RDhit is not significantly related to any type
of centrality, possibly because the simple averaged regulatory distance fails to reflect the global norm of NTMs. Thus, we need to address the
endogeneity problem via other methods. We will discuss this issue in Section 4.3.
6
Fig. 2. Illustration of the forward centrality metrics.

Source: Criscuolo and Timmis (2018a)
centrality in GVCs. By adopting the regulatory distance measure, we approximate the country’s regulatory dissimilarity against the
global norm, rather than capture the technical difficulties and the compliance cost burdens faced by firms that serve a particular foreign
market.
3.3. Data for technical regulations
The new UNCTAD database provides a snapshot of the NTMs that affect imports (and exports) at the time of data collection. We use
the latest researcher file (v12) of the UNCTAD database (UNCTAD, 2017, TRAINS NTMs: The Global Database on Non-Tariff Measures),
in which the NTMs that have been collected and reported by 85 countries are recorded.9 The year of data collection varies across the 85
countries, ranging from 2012 to 2017, with the average year being 2015. As for the older NTM data in and around 1999 that are to be
compared with the latest data, we manually collected the historical TRAINS NTM data through the World Integrated Trade Solution
(WITS) database.10
To relate the regulatory distance with the data for the GVC centrality that are available up to the latest year of 2015, we look at the
NTMs existing in 2015 and/or 2016 that are reported by respective countries as a snapshot as of 2015 or later years. We consider both
2015 and 2016 because 45% of the countries included in the UNCTAD database report a snapshot of NTMs as of 2016.11 The only
exceptions are the United States and Korea. We include the United States in our sample even though the year of data collection is 2014,
considering its dominance in the global economy. We manually collected NTM data for Korea although Korean NTMs are not included in
the ready-made v12 researcher file.12
Among various NTMs recorded in the UNCTAD database, we focus on the so-called technical measures, such as sanitary and phy-
tosanitary (SPS) measures and technical barriers to trade (TBT).13 For each technical regulation, the UNCTAD database contains in-
formation on the measure type coded according to the UNCTAD Multi-Agency Support Team (MAST)’s 2012 classification of NTMs,
known as the M3 version or the third revision of the MAST NTM classification (UNCTAD, 2015). In the M3 classification, NTMs are
categorised into 16 chapters (A–P) based on the purposes of the measures, each of which is further differentiated into groups (in most
chapters) and subgroups (in some chapters). Technical measures are classified under chapters A (SPS measures), B (TBT), and C
(pre-shipment inspection and other formalities). However, following Nabeshima and Obashi (2020), we exclude A11 (temporary
geographic prohibitions for SPS reasons), A12 (geographical restrictions on eligibility), and B11 (prohibition for TBT reasons) because
imports are by definition explicitly prohibited upon the implementation of these measures, unlike other technical measures of our
interest. Considering all the possible codes at any aggregation level (mostly two-digit numerical codes), the total number of codes for
9
The latest NTM dataset is available at: https://trains.unctad.org/forms/Analysis.aspx.
10
The older NTM dataset is available at: https://wits.worldbank.org/.
11
Here, we make a bold assumption that the regulations that are recorded as implemented beginning in 2016 are highly likely to have been
implemented already as of 2015. Even if there are slight changes in the regulatory requirements or in the affected products from 2015 to 2016, the
regulation itself is thought to be coded under the same NTM classification code and as affecting the same product code in most cases. In addition, we
omit the observations of NTMs ‘to be’ effective in 2015–2016 that were reported in 2014 or earlier because these measures would be altered or
terminated after the year of data collection at the discretion of the regulatory authority. Meanwhile, we include the observations of NTMs that are
reported in 2015 or later since they were reliably valid in 2015–2016.
12
The NTM dataset for the specific country including South Korea is available at: https://trains.unctad.org/Default.aspx.
13
‘Technical measures’ is a generic term used to refer to technical regulations, standards, and conformity assessment procedures. The terms
‘standards’ and ‘technical regulations’ differ with respect to compliance norms. Standards are market-driven and are in principle, voluntary.
Meanwhile, technical regulations are officially enforced by governments and are mandatory. The UNCTAD NTM database covers mandatory regu-
lations; as such, the terms ‘technical regulations’ and ‘technical measures’ are used interchangeably throughout this paper.
7
technical measures is 77, out of which 74 codes are recorded in our data set.14
As for the affected products, the corresponding HS codes are reported based on national tariff lines at the most disaggregated level,
following either the H2, H3, or H4 version of the HS classification. For consistency, we convert all the product information to the 5224
six-digit codes of the H2 version. Product codes totalling 4943 are recorded in our dataset. These six-digit HS codes are matched with the
ICIO sectors.
Ultimately, we limit our sample to the 74 types of technical regulations enforced against the 4943 product codes in 2015 and/or
2016, as reported by the 32 countries that are also included in the 2018 edition of the OECD ICIO tables. Our sample of 32 countries
includes the European Union as a single statistical unit because the European Union, as a customs union, implements uniform NTMs
against the rest of the world.
For the older NTM data, as comparison, we collected the corresponding data of technical measures in 1999 if available (or the closest
available year) for the 32 sample countries. Unlike the latest data, the older data are recorded based on the M0 version of the NTM
classification. By scrutinising the NTM code description of the M0 classification, we detect the codes that can be regarded as technical
measures of our interest (i.e. the disaggregated codes of M0 that correspond to those classified under chapters A–C of M3, except the
explicit prohibitions of A11, A12, and B11).
To compute the bilateral (and aggregated) regulatory distance measure, we look at a set of technical regulations implemented by
each country against imports from all countries (with no discrimination among trading partners) that are also expected to be applicable
to domestic production and sales. Specifically, we examine the technical regulations implemented by each of the 32 sample countries
that substantially affect the rest of the world, consisting of the remaining 31 countries.
To summarise, our dataset for the empirical analysis is two-years of panel data (1999 and 2015) that covers 74 technical regulations
in 36 sectors of 32 sample countries.15 However, this panel data is unbalanced because it lacks information on three countries (Canada,
Israel, and South Korea) in 1999 due to the data availability, and subsequently, the 1999 sample size is somewhat smaller than that of
2015.
3.4. Estimating equation
This study investigates whether the country-sector level regulatory distance may affect the sector’s centrality in the GVCs. We
examine this with the following regression specification:
Centralityhit ¼ β0 þ β1 WeightedRDhit þ β2 Tariffith þ β3 Sizehit þ δi þ δh þ εhit (9)
The outcome variables of interest are the country-sector level centrality indices at time t ðCentralityith Þ. This can be divided further into
three types: total, forward, and backward centrality, which correspond to cTotal;h i , cForward;h
i , and cBackward;h
i as defined in Section 3.2,
h
respectively. The key independent variable (WeightedRDit ) is the value-added weighted regulatory distance of country i’s sector h at time
t. As will be confirmed by the scatter plots in Section 4.2, we can expect the coefficient to be significantly negative. The other control
variables are the market size of country i’s sector h at time t, Sizehit ; and the restrictiveness of tariffs imposed by country i in sector h at
time t, Tariffith . As for the sectoral tariff restrictiveness, we employ a simple average of the most-favoured-nation (MFN) tariffs across
products within the sector. We add market size as a control variable following Antras (2019), who argues that large countries are likely
to be geographically close to world demand for final goods and thus, their more ‘central’ location should make them more prone to
specialise downstream, and thereby record higher backward GVCs integration on account of their centrality.16 Therefore, market size is
expected to be positively related to centrality.
We convert the dependent variable and the two continuous independent variables into the deviation from their mean values within
the sector and the year (hereinafter, ‘centred continuous variables’). In other words, the mean value of each converted continuous
variable within its sector and year is equal to zero. By doing so, we could shed light on the within-sector centrality differences that can
more explicitly demonstrate the effect of NTM regulations, rather than comparing the cross-sector centrality differences.
14
To count the number of technical measures, we treat the aggregated NTM codes, such as A50, as representing regulations different from the
relevant measures within the same one-digit numerical category. A technical measure can be coded at a higher level even though more disaggregated
codes exist, if a relevant legal document does not provide enough information to assign the measure to a disaggregated level, though such cases are
rare. Another related case is where the ‘not elsewhere specified (n.e.s.)’ code is used if a requirement is precisely defined in a legal document but does
not match any of the existing codes. See UNCTAD (2014) for more details on when the higher-level and n.e.s. codes can be used in constructing the
original database.
15
The 32 sample countries, the 36 sample sectors, and the 74 technical regulations are listed in Table A1, Table A2, and Table A3, respectively.
16
The factor of geographical proximity is unobservable because it will be absorbed by the country fixed effect in our main specification analysis. As
a robustness check, we run Eq. (9) using a remoteness index following Head (2003) to replace the country fixed effect. Typically, the remoteness
!
P
index is defined as: Remotenessit ¼ 1= GDPjt =Distanceij , where Distanceij is the geographical distance between origin countries i and its trade
j
partner country j (in kms), and GDPjt is the nominal GDP of country j at year t (in billion dollars). The results in Appendix Table A4 are generally in
line with our main results: while the NTM regulatory distance will decrease a country’s total and forward centrality in the GVC, the backward
centrality is not significantly affected. The remoteness index is negatively related to the centrality as expected, while the coefficient is significant only
in the case of the ASEANþ6 subsample analysis.
我们将依赖变量和两个连续独立变量转换为偏离其行业内和年度内的
虽然NTM监管距离将降低一个国家在GVC中的整体和前进中平均值（以下简称"中心连续变量"）。换句话说，其部门和年份内每
心，但落后的中心不会受到显著影响。远程性指数与中心值呈个转换的连续变量的平均值等于零。通过这样做，我们可以揭示部门
负相关，而系数仅在 ASEAN+6 次项分析中具有显著性。
8 内部的中心差异
We further add two sets of fixed effects. We include a set of country-fixed effects δi , to control for country-specific (time-invariant)
characteristics that affect the centrality, such as average productivity and geographic conditions. We also include a set of sector-fixed
effects, δh , to control for sector-specific, time-invariant factors that may affect the centrality, such as the sectoral structure. The error
term, εhit ., captures the correlated shocks within country i’s sector h over year t, and errors are clustered at the country-sector level. In
conducting the estimation, all the continuous dependent and independent variables are converted to the logarithmic scale so that the
coefficients obtained from the estimation can be interpreted as percentage changes of the country-sector level centrality with respect to
the change in the independent variables. We choose the independent variables following Antras (2019), as mentioned in the previous
section, to take the potential determinants into account comprehensively. Specifically, factor endowments and contractual security are
captured by the two sets of fixed effects, and WeightedRDhit and Tariffith are responsible for capturing the effect of trade costs, whereas
Sizehit is responsible for capturing the market size.
4. Data observations and estimation results
We begin by presenting preliminary data observations on the GVC centrality in relation to the regulatory distance from the global
norm, and then provide summary statistics of the variables used in our empirical analysis. After that, we present the estimation results.
4.1. Descriptive statistics
Table 1 provides some descriptive statistics of the variables used in the empirical analysis. The left (right) half pertains to 1999
(2015) data. The first three rows show the figures for the dependent variables, specifically, the GVC centrality indicators. We can see that
the three types of centrality variables (total, forward, and backward) have reasonably similar mean values and standard deviations
within the same year, and have trivially changed throughout the 16 years. As for the weighted regulatory distance, while the minimum
and maximum values in 1999 and 2015 are similar, the mean value has dropped from 1999 to 2015, indicating that the degree of
regulatory differences across countries has become much greater. Meanwhile, the market size of each sector has also considerably
expanded. It would appear that economies have unevenly developed as globalisation advanced and that the international differences in
regulations have become more pronounced.
4.2. GVC centrality and regulatory distance from global standards
In Figs. 3–5, we relate the country’s overall distance from global standards (on the horizontal axis), which is approximated by the
value-added-weighted average of the regulatory distances across trading partner countries, to the GVC centrality indicator (on the
vertical axis). All the figures were generated using the 2015 cross-sectional data. Both the value-added-weighted regulatory distance and
the GVC centrality are captured by the figures via the deviation from the mean. With regard to the GVC centrality, we take a log of the
deviation from the mean (after adding one). The horizontal and vertical dotted lines indicate the mean (whose deviation from the mean
is zero) of the value-added weighted regulatory distance and the GVC centrality, respectively. Although there are 20 ICIO non-service
sectors, we limit our focus to 16 sectors, excluding mining and mining-related, wood and paper, and miscellaneous sectors.
In Fig. 3, we examine ASEANþ6 countries (in red colour) in comparison with other countries in the world (blue) for the respective 16
sectors. First, although one may wonder if key consumers of upstream inputs are also likely to be key suppliers of inputs downstream,
there are differences in the plot pattern between the middle (weighted regulatory distance and GVC forward centrality) and bottom
(weighted regulatory distance and GVC backward centrality) sets of figures. Given this observation, in the subsequent figures, we
separately look at the GVC forward and backward centrality.
Second, we cannot observe any noticeably distinct pattern of ASEANþ6 countries in terms of the relationship between regulatory
distance and the GVC centrality. The red and blue plots are just mixed together.
Table 1
Descriptive statistics.
1999 2015
Obs Mean Std Dev Min Max Obs Mean Std Dev Min Max
Total Centrality 517 0.633 0.143 0.501 1.679 577 0.642 0.164 0.500 2.137
Forward Centrality 517 0.651 0.188 0.500 2.391 577 0.636 0.186 0.500 2.324
Backward Centrality 517 0.615 0.129 0.501 1.793 577 0.649 0.168 0.500 1.950
Weighted RD 517 0.049 0.054 0.010 0.383 577 0.151 0.059 0.009 0.370
Market Size 517 3.5.Eþ04 1.0.Eþ05 5.513 1.0.Eþ06 577 6.4.Eþ04 1.9.Eþ05 6.825 1.7.Eþ06
Tariff 317 0.077 0.077 0 0.562 457 0.056 0.060 0 0.447
9
Fig. 3. Regulatory distance from global standards and GVC centrality: ASEANþ6 in the world.
Source: Authors’ calculations on the OECD ICIO Tables and the UNCATD database.
10
Fig. 4. Regulatory distance from global standards and GVC centrality: Japan in ASEANþ6.
11
Fig. 5. Comparison of Japan, China, and South Korea.

12
Table 2
The Effect on GVC Centrality using Centred Variables.
(1) (2) (3) (4) (5) (6)
Total Relative Centrality Forward Relative Centrality Backward Relative Centrality
Sample Full East Asia Full East Asia Full East Asia
Weighted RD 0.0977* 0.185* 0.141** 0.261** 0.0415 0.108

(0.0539) (0.102) (0.0666) (0.118) (0.0592) (0.116)
Relative Size 0.108*** 0.116*** 0.110*** 0.118*** 0.101*** 0.109***
(0.00604) (0.00899) (0.00727) (0.00916) (0.00704) (0.0119)
Tariff 0.0312 0.148 0.0158 0.116 0.0352 0.188
(0.0716) (0.162) (0.0873) (0.181) (0.0770) (0.166)
Year FE Yes Yes Yes Yes Yes Yes
Country FE Yes Yes Yes Yes Yes Yes
Industry FE Yes Yes Yes Yes Yes Yes
Observations 1094 494 1094 494 1094 494
R-squared 0.728 0.770 0.642 0.715 0.679 0.699
Robust standard errors are in parentheses, clustered at the country-sector level.

***, **, and * denote p < 0.01, p < 0.05, and p < 0.1, respectively.
Third, we can detect a downward-sloping (though weak) relationship between regulatory distance and the GVC indicator for some
sectors such as the rubber and plastic sector (forward centrality) and the electronics sector (backward centrality).
Fourth, in both the middle and bottom sets of figures, China is located in the upper left of the plot region for all sectors.17 This
indicates that China plays a dominant role in GVCs as a key consumer, as well as a key supplier, to the hubs with relatively small
differences of its regulatory regime from global standards. This makes China a typical example for demonstrating the negative rela-
tionship between NTM regulatory distance and a country’s centrality. Besides China, countries located in the upper left of the plot region
appear to face regulatory obstacles that restrict their potential to play a more important role in GVCs. Vietnam, Singapore, and Cambodia
are frequently observed in this region.
In Fig. 4, we highlight Japan’s presence in ASEANþ6 in terms of the relationship between regulatory distance and the GVC cen-
trality. The horizontal and vertical dotted lines of Fig. 4 indicate the mean of the value-added weighted regulatory distance and the GVC
centrality, respectively, across ASEANþ6 countries (unlike Fig. 3, in which the mean is calculated across all countries in the world).
Here, we are interested in examining the presence of Japan and the ASEANþ6 neighbouring countries in the regional production
networks.
First, China’s outperformance is outstanding, even within ASEANþ6. China is located in the upper left of the plot region for all
sectors in both the forward and backward centrality figures. Japan is located in the upper left region for the electronics and motor
vehicle sectors in both the forward and backward centrality figures. Compared with China, Japan appears to face regulatory obstacles
when importing intermediates and unfinished products through GVCs, which may impair its presence as a key consumer and supplier to
the hubs of GVCs.
Second, despite China’s outperformance, we can detect a downward-sloping (though weak) relationship between regulatory dis-
tance and the GVC indicator more clearly within ASEANþ6 than in the worldwide comparison. Specifically, for some sectors,
considering backward centrality, in addition to the electronics sector, we can detect this downward-sloping relationship in textiles,
rubber and plastic, motor vehicles, and other transport equipment sectors. Considering forward centrality, in addition to the rubber and
plastic sector, we can detect the same in electronics, motor vehicles, and other transport equipment sectors.
Fig. 5 focuses exclusively on Japan in comparison with China and South Korea. Each plot represents a specific sector, unlike the
previous figures in which plots represent countries. Consistent with the previous figures, China’s outperformance remains striking. All
Chinese sectors are located at the upper left corner of the plot region. The Japanese sectors’ average level of regulatory obstacles
corresponds with the average level of centrality, except for the motor vehicle sector. South Korea’s large regulatory obstacles through
GVCs lose their importance in the GVCs. The most notable thing is that a strong downward-sloping relationship between regulatory
distance and the GVC indicator is clearly observed, indicating the negative relationship between NTM regulations and GVC centrality.
4.3. Estimation results
We now move on to the estimation results. Table 2 shows the effects of the weighted regulatory distance on the GVC centrality using
the centred continuous variables. Columns 1 and 2 are the total centrality, and Columns 3 and 4 and Columns 5 and 6 correspond to the
17
Specifically, China’s regulatory distance would have been high given China’s relatively large number of NTMs compared with other countries.
However, as our country-sector-year level regulatory distance measure is weighed by trade partner’s share in the world’s total value-added, China’s
own large share indicates that its trade partner’s share would be relatively low, which resulted in the low level of China’s regulatory distance. South
Korea’s high regulatory distance (shown in Fig. 3) can be explained partially based on the same theory. However, as the NTM data of South Korea is
not included in the UNCTAD database, we have to manually collect the raw data and process it into the UNCTAD format. There might be some
inconsistency in format between the data provided by the UNCTAD and those that we manually collected.
具体来说，鉴于中国与其他国家相比，非关税壁垒数量相对较大，中国的监管距离会很高。然而，
由于我国部门年度监管距离衡量标准受到贸易伙伴占世界总增值份额的权衡，中国自身的较大份额
表明，其贸易伙伴的份额将相对较低，导致中国监管距离水平较低。韩国的高监管距离（如图3所 13
示）可以部分地基于同样的理论来解释。然而，由于韩国的NTM数据没有列入贸发会议数据库，我
们必须手动收集原始数据，并将其加工成贸发会议格式。贸发会议提供的数据与我们手动收集的数
据之间在格式上可能有些不一致。T. 伊努伊等人国际经济 166 （2021） 95/115 13
estimated impact on the forward and backward centrality, respectively. Through Columns 1 and 3, we find the negative and significant
effect of the regulatory distance on the total and the forward GVC centralities. The coefficient on the total centrality is slightly smaller
than that on the forward centrality, which may be because the total centrality is defined as the simple average of the forward and the
backward centrality. The magnitudes suggest that a one percentage increase in the weighted regulatory distance, on average, results in
an approximate 0.12 percent decrease in the GVC centrality of the sector. Column 5 however indicates that the regulatory distance does
not have any significant effect on the backward centrality. Therefore, we can conclude that the NTM regulatory distance is generally
harmful to the central role within the sector in the GVCs. More importantly, given that sectors with higher total forward and backward
linkages are more suitable targets for economic stimulation, we can say that the negative effect of the NTM regulatory distance weakens
the sector’s importance within the sector.
Recall that in the plot figures of the previous subsection, we have seen China in the upper left corner position for most sectors. This
means that Chinese sectors have relatively low levels of regulatory distance and high levels of GVC centralities. Given that China has
been the world’s largest supplier and one of the most important hubs in GVCs since the early 2000s, we can infer that it is the harmony of
Chinese regulations with those of its customers that facilitated China’s remarkable progress.
Columns 2, 4, and 6 show the effects on the centrality indicators when we limit the sample to the ASEANþ6 countries. The results
show that the effect on the forward centrality remains significant, and the magnitude is slightly larger than that in the full sample
regression. This means that decreasing the regulatory distance would be more beneficial for ASEANþ6 countries. This result signifies
that trade-restrictive regulations act as an additional cost burden on intermediate suppliers and decrease the GVC forward centrality of
the sector. However, the coefficient on the backward centrality in Column 6 is not statistically significant, which is consistent with the
result obtained from the full sample regression shown by Column 5.
As for the control variables, the estimated coefficient on market size (a control variable) is positive and significant, as expected. Since
market size is normalised, we can say that sectors with above-mean scales are more likely to play a central role in the GVCs, which is in
line with Antr as (2019)’s argument. Tariffs are surprisingly found to have no effect on any type of centrality. This suggests that the fixed
cost associated with the NTMs is more important than the tariff. While tariffs are usually regarded as one of the most important obstacles
to trade, this result indicates that although an increase in variable costs (tariffs) may, to some extent, hinder countries from trading, this
does not play a decisive role in determining hubs in the GVCs.
In addition to Eq. (9), we examine the following first difference model to check if the sixteen-year change in centred GVCs centrality
is related to the sixteen-year change in regulatory distance from 1999 to 2015. The purpose of the first difference model is to further
control for the country-sector fixed effect to check if the changes of each country sector’s regulatory distance over the years can
fundamentally explain the changes in each centrality. In Eq. (10), each continuous variable is measured as the first difference value and
is denoted by ‘Δ’. Typically, there is no year fixed effect controlled for. The equation is as follows:
ΔCentralityhi ¼ β0 þ β1 ΔWeightedRDhi þ β2 ΔTariffih þ β3 ΔSizehi þ εhi (10)
Table 3 shows the results. Generally, controlling for the country-sector fixed effect does not generate qualitative change. Columns
1–4 confirm a similar story with Eq. (9), specifically, the significant and negative impact of NTM regulatory distance on the total and the
forward GVC centrality in both the full sample and the ASEANþ6 subsample regressions. The market size remains significant and
positive in all models. One notable change from the base specification is that the tariffs are found to affect negatively the GVC centralities
within the ASEANþ6 countries. While the negative signs conform to our expectation, the significant effect probably comes from the
omitted fixed effects.
To sum up the results of the two specifications, it can be said that the value-added-weighted regulatory distance presents an obstacle
to sectors in gaining centrality in the global production chains. The analysis uncovers that sectors would rely more on sourcing the
intermediate inputs from the upstream sectors of countries with similar regulations and would concentrate on supplying their outputs to
the downstream sectors of countries with similar regulations. This also can be interpreted as indicating that if the regulations being
enforced by a country are too different from the global norm, the regulatory difference would drive its sectors away from the hubs in the
GVCs.
Table 3
The first difference model.
(1) (2) (3) (4) (5) (6)
ΔWeighted RD 0.155*** 0.217*** 0.320*** 0.413*** 0.00108 0.0270

(0.0331) (0.0627) (0.0434) (0.0798) (0.0354) (0.0660)
ΔRelative Size 0.0564*** 0.0765*** 0.0400*** 0.0604*** 0.0733*** 0.0941***
(0.00710) (0.0115) (0.00820) (0.0131) (0.00780) (0.0124)
ΔTariff 0.0125 0.289*** 0.0725 0.202** 0.0511 0.380***
(0.0364) (0.0943) (0.0525) (0.0972) (0.0423) (0.118)
Observations 517 237 517 237 517 237
R-squared 0.240 0.372 0.123 0.189 0.386 0.504

14
Table 4
Cross-sectional data of 1999.
(1) (2) (3) (4) (5) (6)
Weighted RD 0.0108 0.0684 0.0804 0.0196 0.0707 0.146

(0.0863) (0.134) (0.110) (0.161) (0.105) (0.173)
Relative Size 0.110*** 0.119*** 0.115*** 0.124*** 0.0978*** 0.107***
(0.00701) (0.00965) (0.00878) (0.0104) (0.00829) (0.0147)
Tariff 0.0801 0.00946 0.242 0.182 0.100 0.209
(0.148) (0.386) (0.189) (0.513) (0.136) (0.348)
Observations 517 237 517 237 517 237
R-squared 0.721 0.783 0.639 0.714 0.660 0.675

Table 5
Cross-sectional data of 2015.
(1) (2) (3) (4) (5) (6)
Weighted RD 0.439** 0.667** 0.682*** 0.889*** 0.163 0.460

(0.178) (0.294) (0.212) (0.335) (0.200) (0.315)
Relative Size 0.110*** 0.117*** 0.109*** 0.117*** 0.107*** 0.114***
(0.00645) (0.0103) (0.00748) (0.0106) (0.00747) (0.0121)
Tariff 0.177 0.0330 0.137 0.0297 0.167 0.00634
(0.155) (0.265) (0.168) (0.266) (0.177) (0.293)
Observations 577 257 577 257 577 257
R-squared 0.758 0.792 0.669 0.739 0.731 0.757

4.4. Robustness checks
We proceed with a series of sensitivity tests to confirm the robustness of our results. First, we run the cross-sectional analysis using
data of 1999 and 2015. Tables 4 and 5 present the regression results. Note that the sample size of Table 4 is slightly smaller than Table 5
due to the limited data availability in 1999 of some countries. Both estimations examine the impact of regulatory distance on the centred
total, forward, and backward centrality for the full sample and the ASEANþ6 subsample, and also rely on country- and sector-fixed
effects, consistent with the panel estimation. Table 4 indicates that while the control variables remain unchanged, our key variable,
the NTM regulatory distance, is not related to any type of GVC centrality, which is in contrast to our previous results. This is probably
because there is only trivial NTM regulation difference between countries in 1999 (which can be observed from the descriptive statistics
provided in Table 1) such that the regulatory distance is not a determinant of the GVC centrality.
However, Table 5 shows that the results using 2015 data are very much in line with those obtained in the baseline estimations.
Regulatory distance is found to negatively affect total and forward centrality, with larger magnitudes in both the full sample and the
ASEANþ6 subsample regressions. This suggests that when there is an observable difference between regulatory distance, the negative
effects on centrality are robust.
Next, we address the potential endogeneity problem. Eq. (10) may suffer from endogeneity bias raised by the omitted-variable bias or
reverse causality. The omitted-variable bias can be substantially reduced by the first difference model, which is equivalent to controlling
for the country-sector specific fixed effect. We address the potential reverse causality via the instrumental variables in reference to Niu
et al. (2018). Specifically, the instrument is defined as follows:
1 X
Instrumented RDhijt ¼ weightedNTMikt NTMjkt ; (10a)
k h k2I h
15
Table 6
Instrument variables regression (first stage).
(1) (2)
ΔWeighted RD
Sample Full East Asia
ΔInstrumented RD 0.764*** 0.754***

(0.0340) (0.0429)
ΔRelative Size 0.0102* 0.0114**
(0.00538) (0.00549)
ΔTariff 0.156*** 0.188***
(0.0390) (0.0582)
Observations 517 237
R-squared 0.693 0.793
F-stat 359 249

Table 7
Instrument variables regression (second stage).
(1) (2) (3) (4) (5) (6)
ΔWeighted RD 0.310*** 0.385*** 0.566*** 0.634*** 0.0515 0.124

(0.0515) (0.0744) (0.0658) (0.0978) (0.0529) (0.0767)
ΔRelative Size 0.0716*** 0.0913*** 0.0642*** 0.0799*** 0.0785*** 0.103***
(0.00881) (0.0125) (0.0101) (0.0143) (0.00980) (0.0138)
ΔTariff 0.00327 0.286*** 0.0578 0.198* 0.0542 0.378***
(0.0408) (0.0964) (0.0599) (0.102) (0.0430) (0.117)
Observations 517 237 517 237 517 237
R-squared 0.199 0.346 0.056 0.150 0.384 0.498

where weightedNTMikt is the GDP-weighted average of the NTM dummies of product-regulation combination k at year t for the five
geographically closest economies of country i.18 This is based on the intuition that geographically close countries may have relatively
symmetric NTM regulations because of the similarity of the cultural and legal system. The most important thing is that the NTMs of the
neighbouring economies would only affect a country’s NTM regulations but not its value-added trade. That is, the exclusion restriction is
satisfied. Information on geographical distance is obtained from the CEPII GeoDist database in reference to Mayer and Zignago (2011).19
The estimation results from the first-stage regression illustrated in Table 6 indicate that the use of the instrument is appropriate.
Moreover, the regression F-statistics in the last line reject the presence of weak instruments. Table 7 gives the results from the second
stage of the IV specification. The impact of regulatory distance remains negative and significant through Columns 1 to 4, suggesting that
NTMs weaken a country’s total and forward central role in the GVC. The magnitudes are larger in the case of the ASEANþ6 subsample
than those in the full sample, which is consistent with the previous results. The coefficients on the backward centrality are still not
significant.
Moreover, we examine the robustness against the selection of parameter λ used in the calculation of GVC centrality metrics. In the
baseline specification, we set the value of 0.5 times the reciprocal of the maximum eigenvalue of the input share matrix for the
parameter λ to avoid divergence of the solution in the calculation of centrality metrics because it has to be smaller than the reciprocal of
the maximum eigenvalue. The value of λ was set around 0.25. Using the average intermediate input share as the value of this parameter
is consistent with economic theory (Acemoglu et al., 2012). Therefore, according to previous studies (Carvalho, 2014: Criscuolo and
Timmis, 2018b), we redefined the centrality index by fixing the parameter λ to 0.5, which is the average intermediate input share, and
Table 8 illustrates the estimation results.
The result is slightly different from the baseline specification. First, the effect of regulatory distance on forward centrality is still
negative and significant, but the significance level is 10%, which is weaker than the previous results. Second, the effect of regulatory
distance on backward centrality was not significant in the previous results but became negative and significant. Third, the effect of
regulatory distance on centrality was no longer significant in the East Asia sample.
18
The EU’s closest economies are defined as the five closest countries from Belgium (where the capital of the EU locates) except the EU member
countries.
19
The CPEII GeoDist database is available at: http://www.cepii.fr/cepii/en/bdd_modele/presentation.asp?id¼6.
16
Table 8
Alternative centrality measure.
(1) (2) (3) (4) (5) (6)
ΔWeighted RD 0.0894** 0.0581 0.0834* 0.0559 0.0920** 0.0390

(0.0357) (0.0594) (0.0474) (0.0732) (0.0386) (0.0637)
ΔRelative Size 0.161*** 0.184*** 0.172*** 0.192*** 0.143*** 0.171***
(0.0140) (0.0186) (0.0170) (0.0228) (0.0135) (0.0166)
ΔTariff 0.0345 0.620*** 0.105 0.400** 0.143** 0.738***
(0.0656) (0.142) (0.101) (0.172) (0.0685) (0.152)
Observations 517 237 517 237 517 237
R-squared 0.368 0.480 0.272 0.384 0.289 0.440

Table 9
Subsample without South Korea.
(1) (2) (3) (4) (5) (6)
ΔWeighted RD 0.0888* 0.149* 0.141** 0.245** 0.0272 0.0600

(0.0478) (0.0794) (0.0632) (0.103) (0.0544) (0.103)
ΔRelative Size 0.108*** 0.117*** 0.109*** 0.119*** 0.101*** 0.111***
(0.00610) (0.00897) (0.00741) (0.00926) (0.00719) (0.0122)
ΔTariff 0.0774 0.0172 0.0397 0.0461 0.102 0.00618
(0.0709) (0.191) (0.0930) (0.230) (0.0703) (0.177)
Observations 1074 474 1074 474 1074 474
R-squared 0.727 0.772 0.639 0.714 0.679 0.699

This result demonstrates that the relationship between centrality and regulatory distance can change depending on how the weights
are applied to higher-order links when defining centrality. Therefore, in the baseline specification, no significant relationship was found
between the regulatory distance and the backward centrality in the statistical period, which may be due to a problem in the definition of
the centrality index. How to select the parameters when defining centrality remains an issue for the future.
Further, as the NTM data of South Korea might suffer from format inconsistency due to the manual collection process that we
mentioned in Section 4.2, we then run Eq. (10) using a subsample that excludes South Korea to test if the outliers would affect the
robustness of our findings. The results shown by Table 9 indicate that the consequence we obtained from previous analysis is robust.
Columns 1–4 indicate that while the sample size slightly decreases by nature, the NTM regulatory distance has negative impact on both
the total and forward GVC centrality, and the magnitudes also remain unchanged. Moreover, no significant effect on the backward
centrality is confirmed in Columns 5 and 6, which is consistent with previous results. There is neither a quantitative change in the
control variables.
We then conduct an alternative country-sector-year level tariff variable to replace the original one in Eq. (10). Instead of the simple
Table 10
Alternative tariff measure.
(1) (2) (3) (4) (5) (6)
ΔWeighted RD 0.154*** 0.214*** 0.319*** 0.405*** 0.00325 0.0243

(0.0315) (0.0584) (0.0422) (0.0771) (0.0334) (0.0598)
ΔRelative Size 0.0569*** 0.0737*** 0.0415*** 0.0590*** 0.0736*** 0.0901***
(0.00742) (0.0113) (0.00828) (0.0126) (0.00834) (0.0123)
ΔTariff 5.227 8.150 11.99 14.25 3.735 7.884
(13.38) (17.43) (8.331) (10.09) (18.70) (24.70)
Observations 517 237 517 237 517 237
R-squared 0.242 0.353 0.128 0.193 0.386 0.481

17
Table 11
Country-year fixed effect.
(1) (2) (3) (4) (5) (6)
Weighted RD 0.105 0.142 0.177** 0.224* 0.0117 0.0591

(0.0644) (0.113) (0.0800) (0.134) (0.0731) (0.125)
Relative Size 0.110*** 0.118*** 0.111*** 0.120*** 0.103*** 0.111***
(0.00632) (0.00955) (0.00763) (0.00979) (0.00736) (0.0126)
Tariff 0.0644 0.00232 0.0118 0.0130 0.120 0.00766
(0.122) (0.240) (0.145) (0.262) (0.132) (0.256)
Country-Year FE Yes Yes Yes Yes Yes Yes
Observations 1094 494 1094 494 1094 494
R-squared 0.740 0.784 0.650 0.722 0.703 0.725

average MFN tariff within the sector, the alternative tariff is calculated using the MFN tariff that is weighted by the trade value share.
More specifically, the alternative one is calculated as follows:
X
Tariffith ¼ Shipt Tariffipt ; (11)
p2h
where Tariffipt is the MFN tariff of country i imposed on product p at time t, and Shipt is the share of country i’s product p in the world at
time t. The results are provided in Table 10. The main consequence remains robust. The negative and significant coefficients of the
weighted RD in Columns 1–4 indicate that the NTM regulatory distance will hinder the country from being a central hub, especially as a
central supplier in the GVC. The important thing is that the tariff variable, although it has negative coefficients, does not affect the GVC
centrality, which again confirms the finding that tariff is not decisive in determining hubs in the GVCs.
Finally, as we employ the first difference model following Eq. (10) to control for the country-sector fixed effect in addition to
respectively controlling for the country and sector fixed effect following Eq. (9), we are interested in controlling for the country-year
level varying factors that may affect the centrality such as business cycles and country’s economic shocks. The results illustrated in
Table 11 are in line with the previous findings. Columns 3 and 4 support the robustness of the negative effect of regulatory distance on
the forward centrality, while Columns 5 and 6 again indicate that NTM regulations do not change a country’s backward centrality. The
only difference is that the total centrality is not significantly related to the regulatory distance, which probably resulted from the weak
effect on the forward centrality because the total centrality is defined as the simple average of the forward and backward centrality.
5. Conclusion
In recent years, exporting firms have been reducing their production costs and increasing international competitiveness by off-
shoring and participating in GVCs. Increased participation in GVCs and enhancement of position or centrality within the GVCs are
becoming important policy targets to improve sectoral productivity and international competitiveness. For example, Criscuolo and
Timmis (2018b) found that becoming more central within GVCs is associated with faster productivity growth of non-frontier firms.
Hence, the policy towards enhancing the country’s GVC centrality is expected to lead to sectoral upgrading through productivity
improvement of non-frontier firms.
In this study, we examined whether a country’s centrality in the GVCs of a particular sector is dependent upon the extent to which the
country’s regulatory regime differs from global standards based on country sector-level data from OECD and UNCTAD. Our estimation
results indicate that the more similar a country’s regulatory regime is to the global norm, the more likely it is for that country to play a
dominant role in GVCs. Particularly, a country is more likely positioned as a key supplier of intermediates and unfinished products for
the hubs downstream in the GVCs (i.e. forward centrality) if the exporting firms face regulations that are less different from global
standards. Our empirical findings can be interpreted as suggesting that a country would be able to enhance its centrality in GVCs by
harmonising a set of technical regulations to global standards.
Declaration of competing interest
The authors whose names are listed immediately below certify that they have NO affiliations with or involvement in any organi-
zation or entity with any financial interest (such as honoraria; educational grants; participation in speakers’ bureaus; membership,
18
employment, consultancies, stock ownership, or other equity interest; and expert testimony or patent-licensing arrangements), or non-
financial interest (such as personal or professional relationships, affiliations, knowledge or beliefs) in the subject matter or materials
discussed in this manuscript.
Acknowledgements
The authors acknowledge financial support for a part of this study from the Japan Society for Promotion of Science, KAKENHI grant
number 19H01486.
Appendix
Table A1
List of sample countries
ISO alpha-3 Country ISO alpha-3 Country
ARG Argentina KHM Cambodia

AUS Australia KOR Rep. of Korea
BRA Brazil MAR Morocco
BRN Brunei Darussalam MEX Mexico
CAN Canada MYS Malaysia
CHE Switzerland NZL New Zealand
CHL Chile PER Peru
CHN China PHL Philippines
COL Colombia ROW The rest of the world
CRI Costa Rica RUS Russian Federation
EUN Europian Union SAU Saudi Arabia
HKG Hong Kong SGP Singapore
IDN Indonesia THA Thailand
ISR Israel TUN Tunisia
JPN Japan USA United States
KAZ Kazakhstan VNM Vietnam
Source: OECD ICIO Tables.
TableA2
List of Sample Sectors
ICIO code Sector ICIO code Sector
D01T03 Agriculture, forestry and fishing D30 Other transport equipment

D05T06 Mining and extraction of energy producing products D31T33 Other manufacturing; repair and installation of machinery and equipment
D07T08 Mining and quarrying of non-energy producing products D35T39 Electricity, gas, water supply, sewerage, waste and remediation services
D09 Mining support service activities D41T43 Construction
D10T12 Food products, beverages and tobacco D45T47 Wholesale and retail trade; repair of motor vehicles
D13T15 Textiles, wearing apparel, leather and related products D49T53 Transportation and storage
D16 Wood and products of wood and cork D55T56 Accommodation and food services
D17T18 Paper products and printing D58T60 Publishing, audiovisual and broadcasting activities
D19 Coke and refined petroleum products D61 Telecommunications
D20T21 Chemicals and pharmaceutical products D62T63 IT and other information services
D22 Rubber and plastic products D64T66 Financial and insurance activities
D23 Other non-metallic mineral products D68 Real estate activities
D24 Basic metals D69T82 Other business sector services
D25 Fabricated metal products D84 Public admin. and defence; compulsory social security
D26 Computer, electronic and optical products D85 Education
D27 Electrical equipment D86T88 Human health and social work
D28 Machinery and equipment, nec D90T96 Arts, entertainment, recreation and other service activities
D29 Motor vehicles, trailers and semi-trailers D97T98 Private households with employed persons
Source: OECD ICIO Tables.
Table A3
List of Technical Regulations
Classification Code Classification Code Classification Code

Sanitary and Phytosanitary Measures A10 Sanitary and Phytosanitary Measures A64 Technical Barriers to Trade B33
A13 A69 B40
A14 A80 B41
A15 A81 B42
A19 A82 B49
A20 A83 B60
A21 A84 B70
A22 A85 B80
(continued on next page)
19
Table A3 (continued )
A30 A851 B81
A31 A852 B82
A32 A853 B83
A33 A859 B840
A40 A86 B85
A41 A89 B851
A42 A90 B852
A49 Technical Barriers to Trade B10 B853
A50 B14 B859
A51 B15 B89
A52 B19 B90
A53 B20 Pre-shipment Inspection and Other Formalities C1
A59 B21 C2
A60 B22 C3
A61 B30 C4
A62 B31 C9
A63 B32
Source: UNCTAD database.
Table A4
Remoteness Index
(1) (2) (3) (4) (5) (6)
Total Centrality Forward Centrality Backward Centrality
Weighted RD 0.121* 0.121 0.164** 0.191 0.0627 0.0395

(0.0690) (0.118) (0.0796) (0.128) (0.0710) (0.125)
Size 0.0557*** 0.0532*** 0.0583*** 0.0565*** 0.0514*** 0.0489***
(0.00323) (0.00437) (0.00371) (0.00482) (0.00308) (0.00424)
Tariff 0.0553 0.0952 0.109 0.162 0.00384 0.0219
(0.0728) (0.208) (0.0869) (0.223) (0.0726) (0.207)
Remoteness 0.00531 0.197* 0.00909 0.217* 0.0222 0.174*
(0.0671) (0.109) (0.0797) (0.125) (0.0639) (0.104)
Year FE Yes Yes Yes Yes Yes Yes
Observations 1094 494 1094 494 1094 494

R-squared 0.497 0.495 0.443 0.480 0.458 0.441
Table A5
Alternative Regulatory Distance Measure
(1) (2) (3) (4) (5) (6)
ΔSimple RD 0.0300 0.0648 0.0359 0.00699 0.0233 0.139**

(0.0212) (0.0493) (0.0256) (0.0582) (0.0293) (0.0601)
ΔRelative Size 0.0763*** 0.0886*** 0.0799*** 0.0886*** 0.0713*** 0.0877***
(0.00864) (0.0119) (0.00985) (0.0137) (0.00966) (0.0126)
ΔTariff 0.0175 0.320*** 0.0446 0.208** 0.0715* 0.413***
(0.0326) (0.0818) (0.0501) (0.0924) (0.0406) (0.0954)
Observations 517 237 517 237 517 237

R-squared 0.281 0.391 0.211 0.286 0.194 0.353
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International Economics 166 (2021) 95–115

Contents lists available at ScienceDirect

The impact of regulatory distance from global standards on a

2.1. Economic effects of NTMs

2.2. International competitiveness, participation, and position in GVCs

2.3. Effects of NTMs on GVC trade

3. Data and methodology

3.1. GVC centrality

cBackward;h ¼ η1 þ λW U;h cBackward;h ; (1a)

cForward;h ¼ η1 þ λW D;h cForward;h ; (2b)

3.2. Regulatory distance from global standards

Fig. 2. Illustration of the forward centrality metrics.

3.3. Data for technical regulations

3.4. Estimating equation

Centralityhit ¼ β0 þ β1 WeightedRDhit þ β2 Tariffith þ β3 Sizehit þ δi þ δh þ εhit (9)

4. Data observations and estimation results

4.1. Descriptive statistics

4.2. GVC centrality and regulatory distance from global standards

Fig. 5. Comparison of Japan, China, and South Korea.

Total Relative Centrality Forward Relative Centrality Backward Relative Centrality

Weighted RD 0.0977* 0.185* 0.141** 0.261** 0.0415 0.108

Robust standard errors are in parentheses, clustered at the country-sector level.

4.3. Estimation results

ΔCentralityhi ¼ β0 þ β1 ΔWeightedRDhi þ β2 ΔTariffih þ β3 ΔSizehi þ εhi (10)

Total Relative Centrality Forward Relative Centrality Backward Relative Centrality

ΔWeighted RD 0.155*** 0.217*** 0.320*** 0.413*** 0.00108 0.0270

Robust standard errors are in parentheses, clustered at the country-sector level.

Total Relative Centrality Forward Relative Centrality Backward Relative Centrality

Weighted RD 0.0108 0.0684 0.0804 0.0196 0.0707 0.146

Robust standard errors are in parentheses, clustered at the country-sector level.

Total Relative Centrality Forward Relative Centrality Backward Relative Centrality

Weighted RD 0.439** 0.667** 0.682*** 0.889*** 0.163 0.460

Robust standard errors are in parentheses, clustered at the country-sector level.

4.4. Robustness checks

Sample Full East Asia

ΔInstrumented RD 0.764*** 0.754***

Robust standard errors are in parentheses, clustered at the country-sector level.

Total Relative Centrality Forward Relative Centrality Backward Relative Centrality

ΔWeighted RD 0.310*** 0.385*** 0.566*** 0.634*** 0.0515 0.124

Robust standard errors are in parentheses, clustered at the country-sector level.

Total Relative Centrality Forward Relative Centrality Backward Relative Centrality

ΔWeighted RD 0.0894** 0.0581 0.0834* 0.0559 0.0920** 0.0390

Robust standard errors are in parentheses, clustered at the country-sector level.

Total Relative Centrality Forward Relative Centrality Backward Relative Centrality

ΔWeighted RD 0.0888* 0.149* 0.141** 0.245** 0.0272 0.0600

Robust standard errors are in parentheses, clustered at the country-sector level.

Total Relative Centrality Forward Relative Centrality Backward Relative Centrality

ΔWeighted RD 0.154*** 0.214*** 0.319*** 0.405*** 0.00325 0.0243

Robust standard errors are in parentheses, clustered at the country-sector level.

Total Relative Centrality Forward Relative Centrality Backward Relative Centrality

Weighted RD 0.105 0.142 0.177** 0.224* 0.0117 0.0591

Robust standard errors are in parentheses, clustered at the country-sector level.

Declaration of competing interest

ISO alpha-3 Country ISO alpha-3 Country

ARG Argentina KHM Cambodia

ICIO code Sector ICIO code Sector

D01T03 Agriculture, forestry and ﬁshing D30 Other transport equipment

Classification Code Classification Code Classification Code

Weighted RD 0.0977* 0.185* 0.141 0.261 0.0415 0.108

ΔWeighted RD 0.155* 0.217* 0.320* 0.413* 0.00108 0.0270

Weighted RD 0.439 0.667 0.682* 0.889* 0.163 0.460

ΔInstrumented RD 0.764* 0.754*

ΔWeighted RD 0.310* 0.385* 0.566* 0.634* 0.0515 0.124

ΔWeighted RD 0.0888* 0.149* 0.141 0.245 0.0272 0.0600

ΔWeighted RD 0.154* 0.214* 0.319* 0.405* 0.00325 0.0243