Impact of ICT development on bilateral intermediate input trade: Considering cross-country heterogeneity

ABSTRACT

This study investigates the impact of information and communication technology (ICT) on bilateral trade flows, focusing on intermediate inputs across 161 countries from 1990 to 2016. We utilize the Eora global supply chain input-output tables to distinguish trade in intermediate inputs from gross trade. By adopting the Poisson pseudo-maximum likelihood (PPML) estimator, we find that ICT promotes bilateral and intermediate input trade by lowering trade costs. Notably, the similarity in ICT development between home and host countries is positively associated with bilateral intermediate input trade. Furthermore, the positive effects of ICT on bilateral intermediate input trade are stronger in labor-abundant countries than in capital-abundant countries. We also find that the positive relationship becomes more significant in low-income countries than in high-income ones. Labor-abundant and low-income countries are expected to experience an increase in intermediate input trade through ICT development.

KEYWORDS:

• ICT development
• intermediate inputs
• bilateral trade

JEL CLASSIFICATIONS:

• F10
• F14
• O10

Disclosure statement

No potential conflict of interest was reported by the author(s).

Correction Statement

This article has been republished with minor changes. These changes do not impact the academic content of the article.

Notes

1 This source provides information on intermediate input usage by origin, destination, and sector.

2 The PPML estimator is an effective solution to handle the zero trade and heteroscedasticity problems in trade data (Silva and Tenreyro 2011).

3 Our results are consistent by using OLS regressions. The regression results are available upon request.

4 Appendix B presents the correlation between ICT development and intermediate input for subgroups with different factor endowments. A positive relationship between ICT development and input trade is stronger for labor-abundant countries than for capital-abundant countries.

5 Appendix C displays the t-test results for ICT development across countries with different factor endowments and income levels. Capital-abundant and high-income economies experience higher levels of ICT development than labor-abundant or low-income nations.