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 2 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.

Keywords

• Export sophistication
• Trade diversification
• Market concentration
• Global value chains
• Threshold