Estimating the Effect of the Internet on International Trade in Services

Abstract

This paper assesses the relationship between the Internet and international trade in services. While there are similarities and discriminating differences between trade in services and goods, it is widely believed that the recent rapid internet penetration has benefitted trade in services more than trade in goods. The study carries out an empirical assessment of the contribution of the internet to services export and import for a total of 63 developed and developing countries over the period of 2000-2014. As most explanatory variables are likely to be jointly endogenous with services export and import, we run GMM regressions developed for dynamic panel data. Our results are, in general, consistent with the previous findings that growth in internet users and GDP as well as measures of trade openness all has positive impact on services export and import. For instance, a 1% increase in internet users in the partner countries leads to 0.27% and 0.08% increase in services export and import, respectively, in the combined group of reporting countries. The impact of internet on services export appear larger for developed countries, 0.52%, and insignificant for developing countries. The estimated coefficients of population appear significant while carry unexpected signs. Finally, the real effective exchange rate is significant for the services import only .