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

ABSTRACTThis 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 developmentintermediate inputsbilateral tradeJEL CLASSIFICATIONS: F10F14O10 Disclosure statementNo potential conflict of interest was reported by the author(s).Notes1 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 Citation2011).3 Our results are consistent by using OLS regressions. The regression results are available upon request.