Excerpts from OECD policy paper quantifying the impact of digitalisation on trade.
This paper provides an overview of the evolving nature of digital trade and digital trade policies. It shows that digital trade has been growing faster than “non-digital” trade. By 2018, 24% of global trade (USD 5.1 trillion) could be considered digital trade. In parallel, countries have embraced digital trade provisions in trade agreements and new digital economy agreements have emerged. The empirical analysis shows that growing digital connectivity delivers a double dividend, increasing both domestic and international trade.
It also shows that digital trade chapters have the potential to double the effect of trade agreements, while reductions in domestic barriers affecting digital trade have a strong export-enhancing effect, particularly in digitally-deliverable services. Overall, the results suggest that digital connectivity and digital trade policies play a significant and growing role in reducing trade costs and increasing trade across countries at all levels of development. The paper calls for wider participation and ambition in discussions at the WTO.
…The results presented herein suggest that digital trade is not only growing but also changing. They also underscore an evolving regulatory environment. Since 2000, almost one in two new trade agreements signed has an e-commerce provision. However, uptake by middle-income countries has been slower and shallower than that of high-income countries. Low-income countries have, to date, not taken part in these at all.
More recently, new Digital Economy Agreements are emerging. These cover a wider range of issues, going beyond what is covered in many digital trade chapters, including co-operation on artificial intelligence, underwater cables, digital identity and open government data. In parallel, discussions on digital trade are underway between 88 countries at the Joint Initiative on e-commerce with issues covered being similar to those appearing in e-commerce chapters of RTAs.
Against the backdrop of growing international discussions on digital trade, there has been an overall tightening of domestic regulatory approaches, albeit with differences across regions. The African region appears to have the most restrictive environment for digital trade, but there is evidence of ongoing liberalisation. In turn, OECD countries have the lowest level of restrictiveness, but the trend is towards tightening regulation.
To date, the magnitude of digital trade and the impact of these policies has been difficult to capture, largely due to measurement difficulties. However, using proxy variables, this paper has shown that digital trade could represent as much as 24% of all trade. In some countries, digital trade represents more than half of total exports.
Where impact of digitalisation on trade is concerned, the paper shows that digital connectivity not only plays a statistically significant role in reducing trade costs and therefore increasing trade, but that this effect is growing in time. The paper also highlights that there is a double dividend from increasing digital connectivity, raising both domestic and international trade for countries at all levels of development. It also shows that digitalisation matters across all sectors of the economy, including agriculture and food as well as manufacturing activities.
Last, but certainly not least, this paper shows that digital trade policies matter. Indeed, having a trade agreement with an e-commerce chapter is seen to double the benefits of an RTA, however the results are sensitive to the depth of these provisions. More work in this area is required to better capture the impact of e-commerce provisions on trade. Moreover, domestic policies, especially those that affect electronic transactions and infrastructure and connectivity, have a quantitatively important and significant trade reducing effect.
The paper makes a particular effort to identify the extent to which these issues differ across countries at different levels of development. It finds that, largely, there is a strong case for both developed and developing countries to engage in wider digitalisation and liberalisation of digital trade. While the paper does not extensively cover low-income countries due to data challenges, evidence using the ITPD-E database suggests that digital connectivity is an important contributor to trade flows in lower-income economies.
Overall, the findings from this paper support the idea that countries at all levels of development have much to gain from embracing the digital transformation for trade. This underscores the importance of a wider and more ambitious engagement in digital trade policy discussions, whether in trade agreements, emerging digital economy agreements or in discussions at the Joint Initiative on e-commerce at the WTO.