Advertisement

Digitalization and India’s Losing Export Competitiveness

  • Rashmi BangaEmail author
  • Karishma Banga
Chapter
  • 3 Downloads
Part of the India Studies in Business and Economics book series (ISBE)

Abstract

The digital revolution is rapidly transforming global manufacturing and trade, thereby altering export competitiveness of developing countries. This paper examines the impact of growing digitalization on India’s exports, using both sector- and firm-level analyses. At the sectoral level, the paper estimates the value added by digital services in India’s exports and compares it to its competitor countries, using Leontief’s decomposition and input–output data from the World Input-Output Dataset. At the firm level, the paper empirically estimates the impact of increasing digital assets on export intensity of Indian manufacturing firms in period 2000–2015, using panel data methodologies of system GMM and random effects Tobit. Results indicate that the value added by digital services in manufacturing exports of India is much lower than in other developing countries. A closer examination reveals that most of the value added by digital services is contributed to India’s exports of computer programming and telecommunication services, which together account for 88% of total value added contributed by DS to total exports. India is found to be losing competitiveness in some key traditional sectors, including tea, spices, clothing and leather, which are found to be less digitalised compared to other sectors. Firm-level empirical results confirm the important role of digitalization as driver of export competitiveness in Indian manufacturing firms. System GMM and Tobit results reveal that as the share of digital assets in overall plant and machinery increases in a firm, its export intensity rises and other things constant. There is thus a need for targeted policies and strategies for increasing digitalization of India’s exportable sectors, particularly of traditional exports like textiles and clothing and leather and leather products as these sectors generate large-scale employment for low-skilled workers.

References

  1. Arellano, M., & Bond, S. (1991). Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations. Review of Economic Studies, 58(2), 277–297.CrossRefGoogle Scholar
  2. Arellano, M., & Bover, O. (1995). Another look at the instrumental variable estimation of error-components models. Journal of Econometrics, 68, 29–51.Google Scholar
  3. Baldwin, J. R., & Yan, B. (2014). Global value chains and the productivity of Canadian manufacturing firms. Statistics Canada = Statistique Canada.Google Scholar
  4. Banga, K. (2017). Global value chains and product sophistication: An Empirical Investigation of Indian firms. Geneva: Center for Trade and Economic Integration, Graduate Institute of International and Development Studies.Google Scholar
  5. Banga, R. (2019). Is India digitally prepared for international trade? Economic and Political Weekly54.Google Scholar
  6. Banga, K., & te Velde, D. W. (2018a). Digitalization and the future of manufacturing in Africa. London: Overseas Development Institute.Google Scholar
  7. Banga, K., & te Velde, D. W. (2018b). How to grow manufacturing and create jobs in a digital economy: 10 policy priorities for Kenya (SET Report). London: ODI.Google Scholar
  8. Bas, M. (2013). Does services liberalization affect manufacturing firms’ export performance? Evidence from India (CEPII Working Paper No. 2013–17). Paris: Centre d’Études Prospectives et d’Informations Internationales.Google Scholar
  9. Bernard, A. B., Eaton, J., Jensen, J. B., & Kortum, S. S. (2003). Plants and productivity in international trade. American Economic Review, 93(4), 1268–1290.CrossRefGoogle Scholar
  10. Bhat, S. (2015). Information technology investments and export performance of firms: Of pharmaceutical industry in India. Paper presented at the Knowledge Forum 10th Annual Conference on Technology Growth and Sustainability, Bangalore, India.Google Scholar
  11. Borges, M., Hoppen, N., & Luce, F. B. (2009). Information technology impact on market orientation in ebusiness. Journal of Business Research, 62(9), 883–890.CrossRefGoogle Scholar
  12. Chaney, T. (2005). Liquidity constrained exporters. Mimeo: University of Chicago. Retrieved from May 4, 2008, from https://www.economicdynamics.org/meetpapers/2007/paper_979.pdf.
  13. Commander, S., Harrison, R., & Menezes-Filho, N. (2011). ICT and productivity in developing countries: New firm-level evidence from Brazil and India. Review of Economics and Statistics, 93(2), 528–541.CrossRefGoogle Scholar
  14. Erumban, A. A., & Das, D. K. (2016). Information and communication technology and economic growth in India. Telecommunications Policy, 40(5), 412–431.CrossRefGoogle Scholar
  15. Ghosh, M., & Roy, S. S. (2018). Foreign direct investment, firm heterogeneity, and exports: An analysis of Indian manufacturing. Asian Development Review, 35(1), 27–51.CrossRefGoogle Scholar
  16. Goldar, B., & Banga, K. (2018). ‘Country origin of foreign direct investment in indian manufacturing and its impact on productivity of domestic firms’ in FDI, technology and innovation. In N.S. Siddharthan & K. Narayanan. Springer.Google Scholar
  17. Goldar, B., & Kato, A. (2009). Export intensity of indian industrial firms in the post-reform period. In S.R. Hashim, K.S. Chalapati Rao, K.V.K. Ranganathan, & M.R. Murty (Eds.), Indian industrial development and globalisation: Essays in honour of Prof. S.K. Goyal (pp. 471–498). New Delhi: Institute for Studies in Industrial Development, New Delhi.Google Scholar
  18. Goldar, B., Banga, R., & Banga, K. (2018). India’s linkages into global value chains: The role of imported services. In Shekar Shah, Barry Bosworth, & Karthik Muralidharan (Eds.), Indian policy forum 2017–2018. New Delhi: National Council for Applied Economic Research.Google Scholar
  19. Goldstein, A. (2002). Local entrepreneurship in the era of e-business: Early evidence from the Indian automobile industry. In Andrea Goldstein & David O’Connor (Eds.), Electronic commerce for development (pp. 93–120). Paris: OECD.Google Scholar
  20. Goldstein, A., & O’Connor, D. (Eds.). (2002). Electronic commerce for development. Paris: OECD.Google Scholar
  21. Gupta, A., Patnaik, I., & Shah, A. (2013). Learning by exporting: Evidence from India (ADB Working Paper Series on Regional Economic Integration No. 119) Manila: Asian Development Bank.Google Scholar
  22. Haidar, J. I. (2012). Trade and productivity: Self-selection or learning-by-exporting in India. Economic Modelling, 29(5), 1766–1773.CrossRefGoogle Scholar
  23. Joseph, K. J., & Abraham, V. (2007). Information technology and productivity: Evidence from India’s manufacturing sector (Working Paper 389). Trivandrum, Kerala, India: Centre for Development Studies.Google Scholar
  24. Kasahara, H., & Lapham, B. (2013). Productivity and the decision to import and export: Theory and evidence. Journal of International Economics, 89(2), 297–316.CrossRefGoogle Scholar
  25. Kite, G. (2012). The impact of information technology outsourcing on productivity and output: New evidence from India. Procedia Economics and Finance, 1, 239–248.CrossRefGoogle Scholar
  26. Kite, G. (2013). The role of information technology outsourcing on output, productivity and technical efficiency: Evidence from Indian firms. Journal of European Economy, 12(3), 260–285.Google Scholar
  27. Krishna, K. L., Erumban, A. A. & Goldar, B., (2018). ICT investment and economic growth in India: An industry perspective (No. id: 12684).Google Scholar
  28. Kumar, N., & Siddharthan, N. S. (1994). Technology, firm size and export behaviour in developing countries: The case of indian enterprises. Journal of Development Studies, 31(2), 289–309.CrossRefGoogle Scholar
  29. Lal, K. (2004). E-business and export behavior: Evidence from Indian firms. World Development, 32(3), 505–517.CrossRefGoogle Scholar
  30. Leering, R. (2017, September 28). 3D printing: A threat to global trade. ING.Google Scholar
  31. Lohrke, F. T., Franklin, G. M., & Frownfelter-Lohrke, C. (2006). The Internet as an information conduit: A transaction cost analysis model of US SME Internet use. International Small Business Journal, 24(2), 159–178.CrossRefGoogle Scholar
  32. Manova, K. (2013). Credit constraints, heterogeneous firms, and international trade. Review of Economic Studies, 80(2), 711–744. van der Marel, E. (2017).Google Scholar
  33. Mayer, J., & Banga, R. (2019). Industry 4.0 and impacts on industrial hubs. The Oxford Handbook of Industrial Hubs and Economic Development.Google Scholar
  34. Melitz, M. J. (2003). The impact of trade on intra-industry reallocations and aggregate industry productivity. Econometrica, 71(6), 1695–1725.CrossRefGoogle Scholar
  35. Mitra, A., Sharma, C., & éganzonès-Varoudakis, M. (2014). Trade liberalization, technology transfer, and firms’ productive performance: The case of indian manufacturing. Journal of Asian Economics, 33, 1–15.Google Scholar
  36. Moodley, S. (2002). E-business in the South African apparel sector: A utopian vision of efficiency? Developing Economies, 40(1), 67–100.CrossRefGoogle Scholar
  37. Moreno, L. (1997). The determinants of Spanish industrial exports to the European Union. Applied Economics, 29, 723–732.CrossRefGoogle Scholar
  38. Morgan-Thomas, A., & Bridgewater, S. (2004). Internet and exporting: Determinants of success in virtual export channels. International Marketing Review, 21(4/5), 393–408.CrossRefGoogle Scholar
  39. Motohashi, K. (2008). IT, enterprise reform, and productivity in Chinese manufacturing firms. Journal of Asian Economics, 19(4), 325–333.CrossRefGoogle Scholar
  40. Mukherjee, S. (2015). The role of services in enhancing Indian manufacturing exports: A firm level analysis, 2000–01 to 2011–12 (Discussion Paper no.15-08). New Delhi: Centre for International Trade and Development, School Of International Studies, Jawaharlal Nehru University.Google Scholar
  41. Muuls, M. (2008) Exporters and credit constraints. A firm-level approach (Working Paper 200809-22). Brussels: National Bank of Belgium.Google Scholar
  42. Nagaraj, P. (2014). Financial constraints and export participation in India. International Economics, 140(1), 19–35.CrossRefGoogle Scholar
  43. Noland, M. (1997). Has Asian export performance been unique? Journal of International Economics, 43, 79–101.CrossRefGoogle Scholar
  44. Padmaja, M., & Sasidharan, S. (2015). Financial constraints and firm export behaviour: Evidence from India. In Paper presented at Finance and Economics Conference, Lupcon Center for Business Research.Google Scholar
  45. Padmaja, M., & Sasidharan, S. (2017). Sunk costs, firm heterogeneity, export market entry and exit: Evidence from India. Journal of Quantitative Economics, 15(2), 367–393.CrossRefGoogle Scholar
  46. Portugal-Perez, A., & Wilson, J. S. (2012). Export performance and trade facilitation reform: Hard and soft infrastructure. World Development, 40(7), 1295–1307.CrossRefGoogle Scholar
  47. Quast, B., & Kummritz, V. (2015). Decompr: Global value chain decomposition in R (No. BOOK). The Graduate Institute of International and Development Studies.Google Scholar
  48. Ranjan, P., & Raychaudhuri, J. (2011). Self-selection vs. learning: Evidence from Indian exporting firms. Indian Growth and Development Review, 4(1), 22–37.CrossRefGoogle Scholar
  49. Roodman, D. (2009). How to do xtabond2: An introduction to difference and system GMM in Stata. Stata Journal, 9(1), 86–136.CrossRefGoogle Scholar
  50. Sharma, S., & Singh, N. (2013). Information technology and productivity in Indian manufacturing. Shekhar Shah Barry Bosworth Arvind Panagariya189.Google Scholar
  51. Thomas, R., & Narayanan, K. (2016). Productivity heterogeneity and export market participation: A study of indian manufacturing firms. In F. De Beule & K. Narayanan (Eds.), Globalization in Indian industries: Productivity, exports and investment (pp. 97–120). Singapore: Springer.Google Scholar
  52. Trefler, D. (1993). International factor price differences: Leontieff was right. Journal of Political Economy, 101, 961–987.Google Scholar
  53. Trefler, D. (1995). The case of the missing trade and other HOV mysteries. American Economic Review, 85(5), 1029–1046.Google Scholar
  54. Wagner, J. (2007). Exports and productivity: A survey of the evidence from firm level data. World Economy, 30(1), 60–82.CrossRefGoogle Scholar

Copyright information

© Springer Nature Singapore Pte Ltd. 2020

Authors and Affiliations

  1. 1.United Nations Conference on Trade and Development (UNCTAD)GenevaSwitzerland
  2. 2.Global Development Institute, University of ManchesterManchesterUK

Personalised recommendations