Trade Effects of Digitalization
Abstract: This essay examines the impact digitalization has on trade in services inside the European Union (EU). Furthermore, it investigates whether countries with discrepancies in the degree of digitalization have identified such trade effects to different scopes. Initially, the application method used in this study is the gravity model using panel data with a disaggregated dataset from The Organisation for Economic Co-operation and Development (OECD) with 19 exporting countries and 28 importing countries between 2015 and 2018. The dataset is divided into three subcategories - Blue collar services, White collar services, and Other services. An array of econometric estimation methods are tested and the fixed-effect method is found to be the most accurate estimator. The key finding of this paper is that some dimensions of the level of digitalization in the exporting country have a positive and significant effect on services trade. To our knowledge, no earlier studies have investigated the effects of trade on digitalization, hence there is room for further research.
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