We estimate the effects of trade facilitation on export diversification, as measured by two extensive margins: the number of products exported by destination and the number of export destinations served by product. To address the issue of causality, we employ an identification strategy whereby only exports of new products, or exports to new destinations, are taken into account when computing the respective margins of trade. We find a positive impact of trade facilitation on the extensive margins of trade. The results are robust to alternative definitions of extensive margins, different sets of controls and various estimation methods. Simulation results suggest substantial extensive margin gains from trade facilitation reform in SubSaharan Africa and Latin America and the Caribbean.
Identifying the determinants of global value chain (GVC) integration is essential to understand the past expansion and current slowdown in GVCs. In this paper, we study the role of domestic value chains (DVCs) for GVC integration. In the presence of industry‐specific fixed costs of fragmenting production and of switching across input suppliers, DVCs can either be stepping stones or stumbling blocks for subsequent GVC entry. Focusing on backward linkages, that is, the sourcing of intermediates, we provide robust empirical evidence in favour of the stepping‐stone hypothesis. In our benchmark specification, a one standard deviation increase in DVC integration raises subsequent GVC integration by about 0.4%. To identify the mechanisms at work, we exploit two dimensions of industry‐level heterogeneity: product differentiation (a proxy of fragmentation costs) and relationship specificity (a proxy of the costs of switching between suppliers). We find that DVC integration is less conducive to GVC integration in industries that are characterised by relatively high switching costs and relatively low fragmentation costs.
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