Product sophistication: A tie that binds partners in international trade

This paper focuses on the role of product sophistication on the stability of trade flows, especially on those linked to global value chains. The probability of remaining in these global value chains in a changing and unstable competitive environment is expected to be higher for suppliers that provide the most sophisticated goods, i.e. goods that incorporate the most advanced economies' capabilities. In order to check this hypothesis, we investigate the determinants of export survival in the auto industry, a sector highly involved in cross-border production sharing, using a discrete time duration model. Product sophistication has been measured by the “sophistication index” proposed by Hausmann et al. (2007) and the “complexity index” developed by Hidalgo and Hausmann (2009). Our estimates show that, indeed, the risk of interruption of trade relationships decreases with the complexity of the products and also with geographical and economic proximity, previous export experience and with the degree of integration in the international-scale networks.