Participation in Global Value Chains: The impact of distance and national transportation systems

Trade is becoming increasingly fragmented and global value chains (GVCs) more complex. Although GVCs are often considered a defining feature of the current wave of globalization, little is known about what drives GVC participation. This yields to the question what separate less successful countries from successful ones. The increased geographic spread of production processes induces an increasing importance of physical transportation of input and output goods. For emerging economies, increasing international trade and enhancing the participation in global value chains (GVC) are high priority objectives (Percoco, 2014; Bensassi et al., 2015; Rao & Dhar, 2018). In order to achieve them it is necessary to improve the national transportation system and its performance as accessibility is considered an important driver of a country’s attractiveness in today’s globalized production network (Memedovic et al., 2008; Bosker and Westbrock, 2014). This work aims to investigate the determinants of the integration in international production networks of both emerging and developed markets in a transport economic perspective. Starting from the assumption that trade between two countries is conditional on several characteristics of the countries involved that can either enhance or hinder bilateral business activities (Zwinkels & Beugelsdijk, 2010), by implementing an augmented gravity equation (Santos Silva and Tenreyro, 2011; Correia et al., 2019), we investigate the role of the national transportation system in moderating the effects of different betweencountry distance dimensions on GVC-related trade flows. We take into consideration, with a trade policy focus, various aspects of “distance”: geographical, institutional, cultural and economic. We argue that additional costs arising from the different distance dimensions are partly moderated by the host country's national transportation system. Using information provided by the World Input-Output Database (WIOD) for the period 2000-2014, integrated with other data sources, we bring empirical evidence in support of the hypothesis that the national transportation system moderates the effects of between-country distances and reduces the “remoteness” of emerging economies in the global production network participation. Physical gravity factors are found to be significant drivers of vertical trade. We also find evidence confirming that the national transportation system plays an important role in determining countries’ vertical trade integration.