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 (GVCP) Mauritius. The study was done over the period 1990–2019. While most of the literature has focused on developed and industrialized economies, less is known about the relationship between digitalization and global value chain (GVC) for a small island economy like Mauritius. This chapter made use of principal component analysis (PCA) to construct the digitalization index (DIGI). Using the dynamic econometric technique, namely the vector error correction model (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 inflows and skill intensity are also key elements 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 (HC) and digitalization.