Understanding digital services in GVCs: An extended gravity model through the lens of network analysis

Abstract

Countries are increasingly incorporating foreign digital services in their exports, creating new and complex interdependencies between economies, which suggests a new channel for the expansion of global value chains (GVCs). To better understand how these new and complex interdependencies are evolving, we apply a novel methodological framework. First, using social network analysis methodology, we calculate several indicators that capture these complex network interdependencies. Second, we include these indicators in the second stage of a two-step gravity model that explains (in the first step) dyadic trade flows of embodied digital services. Our motivation for this two-stage approach is to avoid difficulties that traditional gravity models have in incorporating complex network interdependencies. Our empirical results suggest statistically significant effects of such interdependencies in the embodied digital services trade flows.