DO ICT AND TECHNOLOGICAL DEVELOPMENT FACILITATE SUPPLY CHAIN TRADE?

Abstract

This paper aims to estimate the impact of ICT and technological development of countries on supply chain trade. As proxy measures of supply chain trade, the author applies domestic value added (DVAFX) included in gross-foreign exports, and foreign-value added included in domestic exports (FVA) from the Eora MRIO database while constructing the ICT variable by using confirmatory factor analysis. Furthermore, as a proxy variable for the country’s technological development, the author applies the economic complexity index developed by Harvard’s Growth Lab, conducting her analysis based on the structural gravity model estimated with the Poisson Pseudo-Maximum Likelihood Estimator (PPML). Together with the standard gravity regressors, the model includes the bilateral position of countries in the supply chain. Our panel dataset covers the 2000-2019 period, including 130 world countries. To control for the potential source of endogeneity, the model includes reporter and partner country fixed effects, yearly fixed effects, and country-pair fixed effects. The results confirm a statistically significant relationship between the country’s technological development and supply-chain trade. Technological development enables a country to produce more complex, higher value-added products and thus to be more upstream positioned in the supply chain. The more upstream the country is in the supply chain, the higher the domestic value added is included in its exports.