Digitalization and trade participation of SMEs

This study examines the impact of digitalization on the participation of small and medium-sized enterprises (SMEs) in export and import activities. Using data on Spanish manufacturing SMEs from 2001 to 2014, we construct a multidimensional firm-level index of digitalization. We then estimate a set of dynamic models analyzing the direct and indirect (via total factor productivity) effects of digitalization on firms' export and import strategies. We find evidence that firms' digitalization positively influences the probability of exporting and importing, both directly and through productivity. We find that productivity has a stronger impact on SMEs' trade behavior than the direct channel of digitalization. A one standard deviation increase in the digitalization index increases the probability of exporting and importing by 1.5 and 0.8 percentage points, respectively, while the same increase in the logarithm of productivity has a three times greater effect for exporting and nine times greater for importing. Plain English SummaryDigitalization facilitates the access of SMEs to international markets. In this study, we analyze how the use of digital technologies affects Spanish small and medium-sized enterprises (SMEs) in their ability to access foreign markets. We find that digitization can help SMEs to export and import, both directly (by facilitating access to a larger market of customers and suppliers) and by improving their productivity. Interestingly, we also find that productivity has a greater impact on trade decisions than the direct channel of digitalization. It should be noted that not all digital technologies have the same effect on trade participation, and that automation technologies only influence trade through the productivity channel. Based on our findings, policymakers interested in helping SMEs export and integrate into global markets should support their digital transformation.