Impact of Export Sophistication on Trade Diversification: The Mediating Role of Participation in Global Value Chains

Abstract

Purpose: The purpose of this study is two-fold: First to investigate the impact of export sophistication and participation in global value chains (GVCs) on trade diversification, and:  Second, to examine the nonlinear relationship between export sophistication and trade diversification under the influence of GVCs. Design/Methodology/Approach: For this, the current study constructed a panel of 105 economies covering the period 2011-2018. For empirical analysis, this study applies the static panel threshold test proposed by Hansen (1999). Findings: According to the results of this study, export sophistication and participation in global value chains have a positive association with trade diversification. In addition, this study finds two thresholds of GVCs that divide the impact of export sophistication on trade diversification into three regimes. Therefore, the relationship between export sophistication and trade diversification is nonlinear. Implications/Originality/Value: Therefore, this study suggests countries to produce sophisticated products and increase their participation in global value chains.