Spinning the web: The impact of ICT on trade in intermediates and technology diffusion
with Claudia Steinwender (MIT Sloan)
previously circulated as "Drivers of Fragmented Production Chains: Evidence from the 19th century"
This paper studies how information and communication technology (ICT) improvements affect trade along the value chain and international technology diffusion. We examine the impact of a revolutionary technology, the roll-out of the global telegraph network, on the 19th century cotton textile industry. First, we show that connection to the telegraph disproportionately increased trade in intermediate goods relative to final goods. We document that this was due to differences in codifiability; that is, the extent to which product specifications could be communicated at a distance using only words (and thus by sending telegrams) as opposed to inspecting a sample of the product. Second, adoption of the telegraph also facilitated international technology diffusion through the complementary mechanisms of importing machinery and acquiring knowledge of the production process and local demand through importing intermediates. These results shed light on how ICT facilitates the formation of global value chains and the diffusion of frontier technology.
This paper uses a natural experiment to estimate the causal effect of temporary trade protection on long-term economic development. I find that regions in the French Empire which became better protected from trade with the British for exogenous reasons during the Napoleonic Wars (1803-15) increased capacity in mechanized cotton spinning to a larger extent than regions which remained more exposed to trade. In the long-run, regions with exogenously higher spinning capacity had higher activity in mechanized cotton spinning. They also had higher value-added per capita in industry up to the second half of the 19th century, but not later.