Digitalization And Global Value Chain Participation. Evidence From A Small Island Economy.

The present study investigates the impact of digitalization on global value chain participation in Mauritius. The study is done over the period 1990 to 2019. While most of the literature has focused on developed and industrialized economies, less is known on the relationship between digitalization and global value chain for a small island economy like Mauritius. This paper made use of the principal component analysis to construct the digitalization index. Using the dynamic econometric technique, namely the VECM, we show that indeed developing the digitalization base of an economy, even as small as Mauritius, can upgrade GVC participation. We also show that apart from digitalization, FDI inflow and skill intensity is as well key element in upgrading GVC participation. Moreover, manufacturing sector development is seen to have more influence on backward GVC in the long run. The granger causality test shows the existence of a unidirectional causality between GVCP and digitalization, digitalization and FDI as well as human capital and digitalization.