Trade-Related Government Expenditure and Developing Countries’ Participation in Global Value Chains
Abstract
:1. Introduction
2. Theoretical Discussion of the Effect of Trade-Related Government Expenditure on GVC Participation
3. Model Specification
4. Data Analysis
5. Econometric Approach
6. Interpretation of Empirical Results
7. Conclusions
Funding
Institutional Review Board Statement
Informed Consent Statement
Data Availability Statement
Acknowledgments
Conflicts of Interest
Appendix A. Definition and Source of Variables
Variables | Definition | Source |
BGVC and BGVC1 | “BGVC” is the first indicator of the participation in the global value chains. It is the backward participation in global value chains (Backward GVC). It reflects a country’s engagement in GVCs as “seller”, and captures the foreign value-added that is embodied in gross exports. In other words, it represents the share of the value added of foreign (imported) goods (that are used as intermediate inputs to produce output for exports) in gross exports. The formula used to calculate the indicator “BGVC” is: , where “DVX” is the foreign value-added that is embodied in gross exports. “GE” is the indicator of gross exports.An increase in the values of this index reflects greater backward participation in GVCs. “BGVC1” is the transformed indicator of “BGVC” that is obtained by applying the method proposed by Baum (2008). The transformation is as follows: BGVC1 = Logit(BGVC). | Author’s calculation based on data from the UNCTAD-Eora Global Value Chain Database. It is available online at: https://worldmrio.com/unctadgvc/ (accesed on: 23 December 2022) |
FGVC and FGVC1 | “FGVC” is the second indicator of the participation in the global value chains. It is the forward participation in global value chains (Forward GVC). It reflects a country’s participation in GVCs as “buyer”, and captures the domestic value added (used as intermediate input) in other countries’ value-added exports. It is calculated as the share (in gross exports) of the exports of intermediate goods that are used by another country as inputs for the production of goods exported to third countries. The formula used to calculate the indicator “FGVC” is: , where “FVA” is the domestic value added that is used in the export of third countries. “GE” is the indicator of gross exports. An increase in the values of this index reflects greater backward participation in GVCs. “FGVC1” is the transformed indicator of “FGVC”, which is obtained by applying the method proposed by Baum (2008). The transformation is as follows: FGVC1 = Logit(FGVC). | Author’s calculation based on data from the UNCTAD-Eora Global Value Chain Database. It is available online at: https://worldmrio.com/unctadgvc/ (accesed on: 23 December 2022) |
EXPECO | Total Government Expenditure for the trade sector (% GDP). This is labelled “Expenditure on economic affairs” in the International Monetary Fund (IMF) Database. This category of expenditure includes:
| Author’s computation based on data sourced from IMF Database for Expenditure by functions of Government Expenditure. See data online at: http://data.imf.org/regular.aspx?key=61037799 (accesed on: 23 December 2022) |
INFRA | Government expenditure related to Infrastructure (% GDP). This category of expenditure includes:
| Author’s computation based on data sourced from IMF Database for Expenditure by functions of Government Expenditure. See data online at: http://data.imf.org/regular.aspx?key=61037799 (accesed on: 23 December 2022) |
PROD | Government expenditure related to Productive Capacity (% GDP). This category of expenditure includes:
| Author’s computation based on data sourced from IMF Database for Expenditure by functions of Government Expenditure. See data online at: http://data.imf.org/regular.aspx?key=61037799 (accesed on: 23 December 2022) |
GDPC | Per capita Gross Domestic Product (constant 2015 US$). | WDI |
HUM | This indicator of human capital. It represents the ‘number of years of schooling and returns to education’). | Data on extracted from the Penn World Tables PWT 9.1 (see [49]). (accesed on: 23 December 2022) |
REER | This the index measuring the Real Effective Exchange Rate. The REER index is computed using a nominal effective exchange rate based on 65 trading partners. An increase in the index indicates an appreciation of the real effective exchange rate, i.e., an appreciation of the home currency against the basket of currencies of trading partners. | Bruegel Datasets (see [50,51]). The datatset could be found online at: http://bruegel.org/publications/datasets/real-effective-exchange-rates-for-178-countries-a-new-database/ (accesed on: 23 December 2022) |
FDI | The variable represents the net inflows of Foreign direct investment (in percentage of GDP). | WDI |
FD | This is the indicator of financial development. It is the share of domestic credit to the private sector in GDP. Missing values have been replaced by the values of the share of the domestic credit offered by banks to the private sector in GDP. To ease the interpretation of results, we have re-scaled this variable (i.e., by dividing it by 100). | Author’s calculation based on data from WDI (accesed on: 23 December 2022) |
POP | Total Population | WDI (accesed on: 23 December 2022) |
RENT | Total natural resource rents (% GDP). | WDI (accesed on: 23 December 2022) |
INST | This is the variable capturing the institutional quality. It has been computed by extracting the first principal component (based on factor analysis) of the following six indicators of governance. These indicators are respectively: political stability and absence of violence/terrorism; regulatory quality; rule of law; government effectiveness; voice and accountability, and corruption. Higher values of the index “INST” are associated with better governance and institutional quality, while lower values reflect worse governance and institutional quality. | Data on the components of “INST” variables has been extracted from World Bank Governance Indicators developed by [52] and updated recently. See online at: https://info.worldbank.org/governance/wgi/ (accesed on: 23 December 2022) |
Appendix B. Descriptive Statistics of Variables Used in the Analysis over the Full Sample
Variable | Observations | Mean | Standard Deviation | Minimum | Maximum |
BGVC | 741 | 0.261 | 0.146 | 0.032 | 0.665 |
FGVC | 741 | 0.286 | 0.096 | 0.089 | 0.632 |
BGVC1 | 741 | −1.193 | 0.839 | −3.406 | 0.684 |
FGVC1 | 741 | −0.967 | 0.495 | −2.320 | 0.539 |
EXPECO | 741 | 4.218 | 2.266 | 0.542 | 16.505 |
PROD | 673 | 0.910 | 0.754 | 0.011 | 8.403 |
INFRA | 663 | 2.327 | 1.643 | −0.097 | 10.233 |
GDPC | 741 | 10,689.430 | 12,012.670 | 297.792 | 68,253.070 |
HUM | 741 | 2.636 | 0.618 | 1.181 | 4.154 |
REER | 741 | 106.554 | 14.021 | 64.880 | 186.216 |
FDI | 741 | 9.230 | 32.446 | −40.087 | 449.081 |
FD | 741 | 56.181 | 40.233 | 3.589 | 254.552 |
INST | 741 | 0.122 | 1.742 | −3.246 | 4.137 |
RENT | 741 | 6.257 | 10.099 | 0.000 | 58.920 |
POP | 741 | 82,000,000 | 249,000,000 | 269,477 | 1,400,000,000 |
Appendix C. List of Countries Used in the Analysis
Full Sample | |||
Albania | Cyprus | Kyrgyz Republic | Qatar |
Algeria | Czechia | Latvia | Romania |
Angola | Dominican Republic | Liberia | Russian Federation |
Argentina | Egypt, Arab Rep. | Lithuania | Singapore |
Armenia | El Salvador | Madagascar | Slovak Republic |
Bahrain | Estonia | Malaysia | Slovenia |
Bangladesh | Fiji | Maldives | South Africa |
Barbados | Guatemala | Malta | Sri Lanka |
Bolivia | Hong Kong SAR, China | Mauritius | Tanzania |
Botswana | Hungary | Mongolia | Thailand |
Brazil | India | Mozambique | Tunisia |
Bulgaria | Indonesia | Namibia | Turkiye |
Burundi | Iran, Islamic Rep. | Nepal | Uganda |
Central African Republic | Israel | Nicaragua | Ukraine |
Chile | Jamaica | Nigeria | United Arab Emirates |
China | Jordan | Pakistan | Uruguay |
Costa Rica | Kazakhstan | Panama | Zambia |
Cote d’Ivoire | Kenya | Philippines | |
Croatia | Kuwait | Poland |
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FEDK | RE Mundlak | FEDK | RE Mundlak | |
---|---|---|---|---|
Variables | BGVC1 | FGVC1 | BGVC1 | FGVC1 |
(1) | (2) | (3) | (4) | |
EXPECO | 0.0108 *** | 0.00958 *** | −0.000144 | −0.000671 |
(0.00294) | (0.00276) | (0.00160) | (0.00253) | |
Log(GDPC) | −0.0860 | −0.105 *** | −0.0447 | −0.0490 |
(0.0873) | (0.0381) | (0.0395) | (0.0342) | |
HUM | 0.0150 | −0.0315 | −0.172 *** | −0.194 *** |
(0.0217) | (0.0411) | (0.0284) | (0.0373) | |
Log(REER) | −0.187 *** | −0.233 *** | 0.291 *** | 0.270 *** |
(0.0590) | (0.0411) | (0.0425) | (0.0376) | |
FDI | 0.000198 *** | 0.000190 | −0.000377 *** | −0.000378 *** |
(5.53 × 10−5) | (0.000145) | (8.25 × 10−5) | (0.000133) | |
FD | 0.000639 | 0.000648 * | 0.000801 *** | 0.000800 ** |
(0.000503) | (0.000353) | (0.000164) | (0.000323) | |
INST | −0.0213 ** | −0.00990 | −0.00533 | −0.000841 |
(0.0103) | (0.0146) | (0.0173) | (0.0133) | |
RENT | 0.00304 ** | 0.00427 *** | 0.00706 *** | 0.00760 *** |
(0.00140) | (0.00122) | (0.00120) | (0.00112) | |
Log(POP) | −0.365 *** | −0.142 *** | −0.0349 | 0.0619 ** |
(0.0785) | (0.0342) | (0.0655) | (0.0285) | |
Constant | 6.281 *** | −1.045 | −0.992 | 0.881 |
(1.859) | (3.160) | (1.442) | (2.569) | |
Observations—Countries | 741—74 | 741—74 | 741—74 | 741—74 |
Within R2 | 0.2304 | 0.2164 | 0.1585 | 0.1551 |
Between R2 | 0.6851 | 0.5483 | ||
Overall R2 | 0.7442 | 0.5834 |
Dependent Variable: BGVC1 | |||||||
---|---|---|---|---|---|---|---|
Variables | Location a | Scale b | Q10th | Q25th | Q50th | Q75th | Q90th |
(1) | (2) | (3) | (4) | (5) | (6) | (7) | |
EXPECO | 0.00790 *** | 0.00212 * | 0.00477 | 0.00601 ** | 0.00786 *** | 0.00988 *** | 0.0112 *** |
(0.00236) | (0.00119) | (0.00323) | (0.00279) | (0.00237) | (0.00240) | (0.00265) | |
Log(GDPC) | −0.158 *** | 0.0317 | −0.205 *** | −0.187 *** | −0.159 *** | −0.129 *** | −0.109 ** |
(0.0424) | (0.0230) | (0.0601) | (0.0507) | (0.0426) | (0.0435) | (0.0489) | |
HUM | 0.0342 | 0.0174 | 0.00858 | 0.0187 | 0.0339 | 0.0504 | 0.0609 |
(0.0324) | (0.0165) | (0.0357) | (0.0321) | (0.0323) | (0.0391) | (0.0458) | |
Log(REER) | −0.316 *** | −0.000982 | −0.314 *** | −0.315 *** | −0.316 *** | −0.317 *** | −0.317 *** |
(0.0422) | (0.0217) | (0.0490) | (0.0437) | (0.0421) | (0.0495) | (0.0576) | |
FDI | 0.000243 *** | −6.46 × 10−5 | 0.000338 *** | 0.000300 *** | 0.000244 *** | 0.000182 * | 0.000143 |
(9.17 × 10−5) | (4.83 × 10−5) | (0.000122) | (0.000105) | (9.19 × 10−5) | (9.81 × 10−5) | (0.000112) | |
FD | 4.39 × 10−5 | 5.84 × 10−5 | −4.21 × 10−5 | −8.15 × 10−6 | 4.30 × 10−5 | 9.87 × 10−5 | 0.000134 |
(0.000283) | (0.000135) | (0.000357) | (0.000315) | (0.000283) | (0.000302) | (0.000339) | |
INST | −0.00734 | −0.00548 | 0.000735 | −0.00245 | −0.00725 | −0.0125 | −0.0158 |
(0.0130) | (0.00706) | (0.0187) | (0.0159) | (0.0130) | (0.0129) | (0.0145) | |
RENT | −0.00158 | −0.000196 | −0.00129 | −0.00140 | −0.00157 | −0.00176 | −0.00188 |
(0.00107) | (0.000508) | (0.00110) | (0.00103) | (0.00107) | (0.00130) | (0.00151) | |
Log(POP) | −0.483 *** | −0.0273 | −0.443 *** | −0.459 *** | −0.483 *** | −0.509 *** | −0.526 *** |
(0.0634) | (0.0289) | (0.0771) | (0.0689) | (0.0634) | (0.0684) | (0.0768) | |
Constant | 9.480 *** | 0.175 | 9.222 *** | 9.324 *** | 9.477 *** | 9.644 *** | 9.749 *** |
(1.164) | (0.543) | (1.464) | (1.297) | (1.164) | (1.231) | (1.377) | |
Observations | 741 | 741 | 741 | 741 | 741 | 741 | 741 |
Dependent Variable: FGVC1 | |||||||
---|---|---|---|---|---|---|---|
Variables | Location a | Scale b | Q10th | Q25th | Q50th | Q75th | Q90th |
(1) | (2) | (3) | (4) | (5) | (6) | (7) | |
EXPECO | −0.00328 | 0.00134 | −0.00562 | −0.00451 | −0.00327 | −0.00195 | −0.00102 |
(0.00256) | (0.00157) | (0.00379) | (0.00296) | (0.00256) | (0.00298) | (0.00366) | |
Log(GDPC) | 0.0822 | 0.0105 | 0.0639 | 0.0726 | 0.0823 | 0.0926 * | 0.1000 * |
(0.0679) | (0.0358) | (0.118) | (0.0924) | (0.0679) | (0.0531) | (0.0555) | |
HUM | −0.0345 | −0.0255 | 0.0101 | −0.0110 | −0.0346 | −0.0597 * | −0.0776 ** |
(0.0340) | (0.0188) | (0.0541) | (0.0425) | (0.0339) | (0.0335) | (0.0389) | |
Log(REER) | 0.225 *** | 0.0194 | 0.191 *** | 0.207 *** | 0.225 *** | 0.245 *** | 0.258 *** |
(0.0416) | (0.0226) | (0.0550) | (0.0449) | (0.0416) | (0.0489) | (0.0585) | |
FDI | −0.000367 *** | −9.65 × 10−5 ** | −0.000199 | −0.000279 *** | −0.000368 *** | −0.000463 *** | −0.000530 *** |
(8.00 × 10−5) | (4.63 × 10−5) | (0.000121) | (9.49 × 10−5) | (8.02 × 10−5) | (8.84 × 10−5) | (0.000105) | |
FD | 0.000545 * | −3.18 × 10−5 | 0.000601 * | 0.000574 * | 0.000545 * | 0.000514 | 0.000491 |
(0.000282) | (0.000154) | (0.000360) | (0.000296) | (0.000282) | (0.000340) | (0.000411) | |
INST | −0.0167 | 0.00228 | −0.0207 | −0.0188 | −0.0167 | −0.0144 | −0.0129 |
(0.0195) | (0.0108) | (0.0353) | (0.0273) | (0.0194) | (0.0144) | (0.0149) | |
RENT | 0.00379 *** | 4.99 × 10−5 | 0.00370 *** | 0.00375 *** | 0.00379 *** | 0.00384 *** | 0.00388 *** |
(0.00100) | (0.000534) | (0.00125) | (0.00104) | (0.00100) | (0.00121) | (0.00146) | |
Log(POP) | 0.0563 | −0.0234 | 0.0972 | 0.0778 | 0.0562 | 0.0332 | 0.0169 |
(0.0736) | (0.0346) | (0.100) | (0.0831) | (0.0736) | (0.0781) | (0.0891) | |
Constant | −3.600 ** | 0.312 | −4.145 * | −3.886 ** | −3.598 ** | −3.291 ** | −3.073 * |
(1.504) | (0.729) | (2.204) | (1.792) | (1.502) | (1.499) | (1.687) | |
Observations | 741 | 741 | 741 | 741 | 741 | 741 | 741 |
Variables | Location a | Scale b | Q10th | Q25th | Q50th | Q75th | Q90th |
(1) | (2) | (3) | (4) | (5) | (6) | (7) | |
Effect of the components of the share of trade-related government expenditure on backward participation | |||||||
Dependent variable: BGVC1 | |||||||
INFRA*PROD | 0.00684 ** | 0.00228 * | 0.00352 | 0.00483 | 0.00684 ** | 0.00898 *** | 0.0105 *** |
(0.00322) | (0.00126) | (0.00387) | (0.00353) | (0.00323) | (0.00331) | (0.00363) | |
INFRA | 0.00558 | 0.00189 | 0.00283 | 0.00391 | 0.00558 | 0.00736 | 0.00862 |
(0.00571) | (0.00255) | (0.00669) | (0.00607) | (0.00572) | (0.00628) | (0.00714) | |
PROD | 0.00143 | 0.00256 | −0.00230 | −0.000831 | 0.00143 | 0.00384 | 0.00554 |
(0.00738) | (0.00406) | (0.00999) | (0.00857) | (0.00738) | (0.00791) | (0.00925) | |
Observations | 652 | 652 | 652 | 652 | 652 | 652 | 652 |
Effect of the components of the share of trade-related government expenditure on forward participation | |||||||
Dependent variable: FGVC1 | |||||||
INFRA*PROD | 0.00139 | 0.00243 | −0.00276 | −0.000865 | 0.00154 | 0.00377 | 0.00540 |
(0.00327) | (0.00169) | (0.00502) | (0.00407) | (0.00324) | (0.00314) | (0.00353) | |
INFRA | −0.00555 | 1.10 × 10−5 | −0.00557 | −0.00556 | −0.00555 | −0.00554 | −0.00553 |
(0.00879) | (0.00478) | (0.0161) | (0.0126) | (0.00854) | (0.00578) | (0.00536) | |
PROD | −0.00489 | −0.00576 | 0.00493 | 0.000445 | −0.00526 | −0.0105 | −0.0144 * |
(0.00690) | (0.00440) | (0.0114) | (0.00887) | (0.00686) | (0.00718) | (0.00864) | |
Observations | 631 | 631 | 631 | 631 | 631 | 631 | 631 |
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Gnangnon, S.K. Trade-Related Government Expenditure and Developing Countries’ Participation in Global Value Chains. Commodities 2024, 3, 1-18. https://doi.org/10.3390/commodities3010001
Gnangnon SK. Trade-Related Government Expenditure and Developing Countries’ Participation in Global Value Chains. Commodities. 2024; 3(1):1-18. https://doi.org/10.3390/commodities3010001
Chicago/Turabian StyleGnangnon, Sèna Kimm. 2024. "Trade-Related Government Expenditure and Developing Countries’ Participation in Global Value Chains" Commodities 3, no. 1: 1-18. https://doi.org/10.3390/commodities3010001
APA StyleGnangnon, S. K. (2024). Trade-Related Government Expenditure and Developing Countries’ Participation in Global Value Chains. Commodities, 3(1), 1-18. https://doi.org/10.3390/commodities3010001