Infrastructure development includes two main stages. The first stage is the development of transport infrastructure. It significantly lowers transport costs and made it feasible to spatially separate production and consumption. Production becomes specialized and clustered in large scale (Florida, 2005). The second stage is the development of communication infrastructure. It significantly lowers coordination costs and makes it feasible for firm specific knowledge and know‐how to be shared across national borders (Baldwin, 2011).

In today’s world, with the drastic decline of transport costs and communication costs, the potential contribution of infrastructure to productivity and growth is magnified. The infrastructure improvement can not only contribute to growth through lowering production costs and transaction costs, increasing total factor productivity, and crowding in other productive factors, but also change the boundary of production and reshape the economy (Lewis and Bloch, 1998; McCann and Shefer, 2004). Yu (2017) found that infrastructure improvement plays a crucial role in the increasing economic cooperation and integration between East Asian countries. The transportation and communication technology revolution has redefined the function of time and distance. The interconnectedness across firms or sectors multiplies and intensifies.<sup>4</sup> The separation of stages of production, or tasks instead of the full products, which is profitable due to the large differences of wages, land prices, and advantageous policies between developed and developing countries, opens new doors for developing countries to specialize in specific niches of the global value chains. It enables an economy to develop its comparative advantages, including latent comparative advantages, potentially at an earlier stage through focusing on a special niche in the global value chains.<sup>5</sup> Countries become increasingly interdependent through supply chain trade, as they specialize in tasks and business functions rather than products. Products at different stages of value added may be imported, exported, and re‐exported multiple times. In 2009, world exports of intermediate goods exceeded the combined export values of final and capital goods for the first time, representing 51% of non‐ fuel merchandise exports (WTO and IDE‐JETRO, 2011).

Global value chain integration can increase domestic value added. As indicated by Kowalski et al. (2015), global value chain participation can increase domestic value added embodied in a country’s exports, enhance the sophistication of the export bundle, and improve diversification of export products. Weinberger and Lumpkin (2007) stated that integrating into the horticulture global value chain offers opportunities for the least developed countries to alleviate poverty by increasing income and creating employment. Kummritz et al. (2017) found both backward and forward global value chain participation can lead to growth of domestic value added, based on a data set covering 61 countries and 34 industries between 1995 and 2011. Gonzalez (2016) found that using foreign value added is one of the most important factors that contribute to growth in domestic value added in exports. In ASEAN countries, the total domestic value added in exports increased nearly four times during the period of 1995‐2011. According to the Global Value Chains Development Report (World Bank et al., 2017), the information and communication

> 4 See Gereffi and Luo (2015) for more discussion.

> 5 See Lin and Monga (2010) and Lin (2012b) for a thorough discussion on the identification of comparative advantages.

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