Comparative Advantage in the Digital Era: New insights into trade in digital tasks and ICT capital

Client/Funding Institution

Anniversary Fund of the Oesterreichische Nationalbank

Abstract

Comparative advantage remains one of the basic principles of international trade theory. This also holds true in times of globalisation and digitalisation. Taking into account the existence of international value chains and productivity differences across countries, this project identified comparative advantage of EU member states in the ‘digital endowments’, comprising 'digital tasks' and ICT capital. A major finding of the research is that the Heckscher-Ohlin-Vanek theorem is capable of predicting endowment-based comparative advantage in 'digital tasks' and ICT capital in the overwhelming majority of case. At the same time, the distribution of comparative advantage across EU member states does not seem to follow a clear pattern, in the sense, that EU innovation leaders necessarily have advantages in digital endowments as one might expect. Another hypothesis was conformed: in a comparison between the EU and the US, the latter emerged as holding comparative advantage in digital tasks, confirming the role of the US as a digital leader. Some of these results were also confirmed by additional competitiveness measures such as revealed comparative advantages (RCAs). Furthermore, econometric analysed showed that investment in R&D, in combination with industrial policies, are capable of shaping comparative advantage were investigated.

Duration

March 2021 - February 2023

wiiw team Leader

Roman Stöllinger

wiiw Staff

Birgit Buschbom, Alexandra Bykova, Chiara Castelli, Stefan Jestl, Alireza Sabouniha, Robert Stehrer

Publications

Keywords: Comparative advantage, Heckscher–Ohlin–Vanek model, digital tasks, ICT capital, hierarchical decomposition, competitiveness

Countries covered: EU-28

Research Areas: International Trade, Competitiveness and FDI

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