Digitisation and Technological Change
Recent advances in digital technologies are affecting the costs and therefore patterns of international trade and production. New digital technologies have, for example, allowed businesses to reach customers in other countries and coordinate their international supply chains more easily.
These opportunities are increasingly being spread to small firms. New digital technologies have also changed the value and volume of data that businesses collect, store and investigate, often on us as individuals, and created new huge platform companies.
Understanding how trade policy should adjust to this moving technological target requires evidence on the impact these technological changes have brought about and how current policy and regulations, for example, those on personal data or intellectual property, have shaped business decisions, in particular around international trade and production. The digital and technological change theme will investigate both of those issues, providing new evidence for the UK and other countries.
To understand the new directions for trade policy this new evidence implies, a final strand of the research will bring together a multidisciplinary team of experts from across CITP. The research findings from this strand will make important contributions toward reconciling personal data protection, the coordination of governance regulations across countries and digital trade provisions in trade agreements.
The effects of technological change
Services trade and changes in UK firms’ international integration
This project aims to build an evidence base of UK firms’ engagement in international trade as it relates to the role of services, investment, and value chains. Modern manufacturing businesses incorporate more and more services into their products, which is often key to their competitiveness. This process of “servicification” affects businesses’ productivity, labour demand, skill composition, and export success. At the same time, international sales of manufacturing products are increasingly accompanied by services contracts. This bundling of goods and services at the firm level, known as “servitisation”, changes the nature of the firm, the nature of international trade, and has implications for trade policymaking.
We will map out trends in servicification and servitisation for UK businesses evidencing the evolution of both phenomena, their economic outcomes, and the way in which firms change their structure, organisation and activities. Of particular interest is the way in which micro, small and medium-sized enterprises may stand to benefit from both servicification and servitisation and the implications of digitisation for the ability to trade services and for bundling goods with digitally-enabled services.
The effect of UK Intellectual Property reforms on domestic firms and developing countries
Stronger intellectual property (IP) rights can generate income for a business. Increased IP protection in developing countries since the mid-1990s (particularly the World Trade Organization TRIPS Agreement) had the effect of increasing technology transfer from research-intensive countries through international trade. An overhaul of the IP court system in the UK between 2010 and 2013 sought to improve access for smaller firms and involved streamlining the court’s procedures, lowering the costs of litigation, and speeding up the resolution of claims. Yet, these are the same firms that compete more directly with those from developing countries in international markets.
Our study seeks to find out whether this change this helped or harmed the international sales of UK or developing country firms. Were UK firms better able to protect their IP, reducing imports of products that are likely to infringe their IP? Or did it encourage developing countries to increase exports to this better protected market? From a policy perspective, the research will help provide an improved understanding of the way domestically-focused policy reforms potentially spill out to impact other countries.
Recession-induced technological changes
A recession is a significant, widespread, and prolonged downturn in economic activity when large changes in various aspects of the economy occur at the same time. However, previous research has found that a recession can induce technology upgrading, since the shock is large enough to overcome the fixed cost of technology adoption.
In this project, we aim to understand the impact of the COVID-19-induced economic recession on labour markets and technology in China. Importantly, we argue that the nature of the recession matters and that there is more than one way in which a recession can affect technology choices. The Covid-19 pandemic led to increases in labour costs, changes in demand for goods and services, and changes in monetary and fiscal policies. Each of these aspects will likely have a different impact on firm survival and the technological choice made by firms.
Understanding the impact of these different forces will help policymakers have a clear picture of the costs and benefits of policies targeting different margins when a particular type of recession hits, and therefore make better policy choices in the future, benefiting both households and firms.
Trade and investment in digital technologies in UK firms
Trade in technology and digital trade have increased substantially in recent years, particularly, in the UK, in terms of imports of intermediate digital services. However, there is little understanding which firm characteristics affect firms’ decisions to invest in digital and other technologies or to import them.
This research examines which firm characteristics affect investment and the import of digital technologies as well as how this affects firm level occupations. It looks at whether firms resort to importing digital services and technology inputs as a strategy to substitute their own investments in technology or to cope with financial barriers to investment in digital and other technologies.
The study is relevant for the UK innovation policy as UK firms have a high exposure to digitalization and increased trade in digital services. Policy that focuses on supporting firms investing in technologies, rather than adopting them via imports, might have different effects on occupations and firm productivity.
Effects of current domestic and international regulation
Data regulation and firm behaviour
Multinational firms account for the majority of innovation output globally. Our research studies the impact of the introduction of GDPR on where multinational enterprises choose to locate and how this effects trade in services by UK firms.
The EU’s General Data Protection Regulation (GDPR) requires a higher degree of privacy, data management, consent for collection, and carries substantial risks and penalties for data ﬂow and processing violations. These rules also apply to UK firms oﬀering goods or services to people located in the EU, or monitoring or predicting their behaviours, personal preferences, or attitudes.
GDPR raises the costs for data-intensive firms, particularly those that use new digital technologies such as cloud computing which are distributed across international borders. With this study, by examining the behaviour of UK firms in response to GDPR, we can get a better picture of the potential conflicts and effects such data regulation may have on international trade, in its many different forms, and on innovation investment and outputs. We will also focus on the role of users of new digital technologies within the service sector.
Intellectual property protection and consequences for firms
How do policies impact the innovation decisions of multinational firms, who are typically the most innovation intensive? Firms decide where and how much to spend on innovation depending in part on the confidence they have that their intellectual property will be protected. The Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS) sets the minimum standards for intellectual property protection globally and prevents countries from using policies that discriminate against foreign innovators. However, it doesn’t cover the implementation of intellectual property protection and non-discrimination provisions within a given country.
This project explores whether bias in court rulings exists in the UK, and the consequences for firms, particularly multinational firms that research in the same or closely-related technology fields. Does this affect the location of their Research and Development departments, or the areas of technology they research? The findings will have important public policy and legal implications including the equity of different firms to the law, and the potential undermining of the World Trade Organization’s effort to promote innovation and the globalisation of knowledge.
New directions for trade policy
How does technology affect trade specialisation of countries in the context of global trade?
Technology has a complex nature. Not all firms located in developed countries offshore low-value added and routinized labour functions to technologically laggard countries. Technology intensive countries might tend to create preferential or tighter trade links with similarly technology intensive countries. Similarly, technologically laggard countries might well establish trade patterns with low technology intensive partners.
This project considers the factors and the functions/activities that contribute to the trade specialisation of a given country with regards to technology. It also assesses whether changes in countries’ and industries’ employment structures are related not only to the level but also to the technological quality of participation in global value chains and will identify patterns of trade specialisation that might differ from the traditional dichotomy between headquarters and factory economies.