Claudia Steinwender, MIT

"Spinning the web: The impact of ICT on trade in intermediatesand technology diffusion"

Abstract

We study how information and communication technology (ICT) improvements affect trade along the value chain and international technology diffusion by studying the impact of a revolutionary technology, the roll-out of the global telegraph network, on the global cotton textile industry. First, we show that connection to the telegraph disproportionately increased trade in intermediate goods relative to final goods because of the different extent to which products were codifiable; that is, the extent to which product specifications could be communicated at a distance using only words (and thus by sending telegrams) as opposed to inspecting a sample of the product. Second, adoption of the telegraph also facilitated international technology diffusion through the complementary mechanisms of importing machinery and acquiring knowledge of the production process through importing intermediates. These results shed light on how ICT facilitates the formation of global value chains and the diffusion of frontier technology.


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