THE EFFECTS OF SUPPLY CHAIN DISRUPTIONS, INEQUALITY SHOCKS, AND INSTITUTIONAL INNOVATIONS ON THE PACE OF INDUSTRIALIZATION IN DEVELOPING COUNTRIES: A PANEL VAR ANALYSISTHE EFFECTS OF SUPPLY CHAIN DISRUPTIONS, INEQUALITY SHOCKS, AND INSTITUTIONAL INNOVATIO

Abstract

We empirically examine the effects of supply chain disruptions, inequality shocks, and institutional innovations on the pace of industrialization in developing countries by running a panel vector autoregressive model. We found that deterioration in income distribution unequivocally harms the developing countries’ bid for industrialization while better institutions proxied by an improvement regulatory quality invariably foster it. On the other hand, the effects of supply chain disruptions on the pace of industrialization follow a nonlinear path, showing the great resilience of local industries in absorbing imported input bottlenecks through intermediate input import substitution. We also provide evidence that backward participation into GVCs and regulatory quality do not mutually Granger-cause each other, and suggest that the well-established link from better governance to GVCs may be missing in the developing country case