Customs digitalization as governance innovation: Impacts on industrial value added via trade and FDI

Abstract

In an increasingly complex international trade environment with growing security threats, improving gross value added in industry (GVA) has attracted considerable attention from policymakers and researchers. Using data from European Union (EU) member states, this research examines whether customs administration digitalization (CAD) can be viewed as an effective tool for improving the competitiveness and productivity of the industrial sector. The results show that CAD offers new opportunities for productivity growth in industry, and this favourable impact is closely related to a critical threshold. Moreover, we find that CAD has a positive impact on GVA by facilitating international trade flows and attracting more foreign investment. This demonstrates that trade in goods and services (Trade) and net foreign investment (NFI) are two transmission mechanisms. Moreover, regional heterogeneity analysis reveals significant differences in CAD’s effectiveness across regions of Europe. Based on these findings, the study provides useful insights for EU member states to use digital customs reform to reduce administrative costs, improve the security of the trade environment and drive productivity in the industrial sector.