Digitalisation is thought to have played a key role in reducing the costs of engaging in international trade, giving rise to new opportunities for firms and consumers to benefit from trade (WTO (2018) and López González and Ferencz (2018)). However, little is still known about the nature and evolution of digital trade. While some studies have explored the trade-enabling effects of digital connectivity, the empirical literature has mostly overlooked a more in depth and holistic analysis of the quantitative impact of digitalisation and digital trade policies on trade and trade costs.
This is, in part, due to data limitations – coverage of trade data or of measures of digital trade policies has not overlapped in a way that enables robust analysis. However, recent updates in existing trade databases and the emergence of new data sources mapping the digital trade policy environment provide opportunities to undertake new analysis.
This paper has two main parts. The first uses available statistics to map the nature and evolution of digital trade and related policies. The second uses a structural gravity model to identify the quantitative impact of digital connectivity and digital trade policies on trade costs and trade flows. The aim of the paper is to provide a robust evidence-base that can feed into ongoing digital trade discussions, whether under the WTO Joint Initiative on e-commerce, in relation to digital trade provisions in regional trade agreements (RTAs), or in the context of emerging digital economy agreements (DEAs). The work is also important in the light of the COVID-19 recovery which has led to a ‘new normal’ that is more digital than before (Pew Research Center, 2021).
The paper is structured as follows. The next section offers an overview of the evolving digital trade environment, providing preliminary estimates of the value and structure of digital trade and mapping the underlying policy environment in which digital trade is unfolding. Section 3 provides an econometric assessment of the impact of digital connectivity and digital trade policies on trade and trade costs. Section 4 concludes, providing some preliminary policy implications.
Javier López González is a senior economist at the Trade and Agriculture Directorate of the OECD. His recent work is focused on digital trade.
Silvia Sorescu is an Economist/Policy Analyst in the Emerging Policy Issues Division of the OECD’s Trade and Agriculture Directorate, which she joined in 2010.
Pınar Kaynak is an independent researcher.
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