Bargaining Power in a Globalized World: The Effect of Global Value Chains in Trade Negotiations

What determines bargaining power of states in international trade negotiations? Current accounts predominantly focus on economic strength as the determinant of bargaining power. However, this explanation neglects the reality of modern trade, which is characterized by high levels of interdependence. In this paper, I argue that interdependence between countries induced by globalization of production counteracts and undermines the effect of economic strength on bargaining power. Speciffically, I hypothesize that the effect of economic strength declines when a country's companies rely on inputs for their production from their negotiation partner because they are integrated in global value chains (GVCs). The more a country's Firms are dependent on a partner country, the lower is the country's ability to coerce concessions from this partner country by bringing to bear its economic strength. To test this hypothesis, I use a dataset covering concessions on liberalizing the services sector made by 54 countries in 61 preferential trade agreements (PTAs). By calculating the relative concessions of each partner, I construct a quantitative measure of bargaining power. This paper contributes to the literature by combining an explanation for determinants of bargaining power in a globalized world with an innovative method to calculate bargaining power.