Go Global, Act Digital: The Impact of Digitalization on Global Value Chain Positioning

Abstract

Despite the rapid advancements in digital technologies, the relationship between digital- ization and trade, particularly concerning global value chains (GVCs), remains unclear. This study investigates the causal effect of digitalization on firm positioning within the GVCs. To establish a conceptual framework and illustrate potential mechanisms, we initiate our exploration by developing a partial-equilibrium model on how the extent of digitalization affects a firm’s optimal span of stages along global production lines. Subsequently, we empirically test the derived hypotheses by utilizing data on Chinese exporters and employing the instrumental variable (IV) estimation method to address endogeneity concerns. Our analysis reveals that digitalization enables firms to broaden their span of production stages by shifting their imports further upstream and directing their exports towards final demand. Consistent with our theoretical predictions, the re- sults of the mechanism analysis indicate that this impact can be attributed to the effects of digitalization on enhancing firm innovation capability, increasing the utilization of high-skilled labor, improving resource allocation efficiency, and mitigating information costs. Additionally, we observe that the impact of digitalization on GVC positioning is more significant for firms with higher initial productivity, a stronger human capital basis, state-controlled ownership, and greater information dependency. These findings provide valuable insights into comprehending the importance of technology in promot- ing trade and reshaping the global value chains.

Keywords: Global value chains; Production line position; Digitalization; China

JEL Classification: F14, L23, O32