The digital trade advantage: investigating the impact on global value chain positions in manufacturing and service industries

This study investigates the impact of digital trade on global value chain (GVC) positions across industries and countries from 2007-2018. A newly developed digital trade level index measures various dimensions including digital infrastructure, industrial digital trade, e-commerce industrialization, and trade potential. Results show that digital trade significantly enhances GVC positioning, with trade potential having the strongest effect. The study also finds that digital trade drives GVC upgrading by optimizing industrial structures. Developed countries experience greater impacts of digital trade on GVC positions compared to developing nations, highlighting country heterogeneity. Industry differences are also observed, with medium-low tech manufacturing and transportation and warehousing services being most influenced by digital trade. The study uncovers industrial structure upgrading as a key mechanism through which digital trade improves GVC positions, though the industrial digital trade dimension somewhat impedes this effect. Based on these findings, the study provides policy insights for developing countries to harness digital trade for GVC upgrading, such as increasing investments in susceptible industries, fostering domestic and global digital ecosystems, promoting efficient resource allocation, and supporting digital integration in medium-low tech manufacturing.