Dynamic and Static Effects of Digital Services Trading on Economic Growth of World Regions

Abstract

The study examines the effect of digital services trading on the economic growth of panel data from five (5) world regions, namely, Africa, Asia, Latin America, Europe, and the Organization for Economic Cooperation and Development (OECD) between 2005 and 2021. The study employs quantitative experimental methods of Panel vector autoregression (PVAR) models as dynamic estimators and the Fixed Effects (FE) models as static estimators. The PVAR model analyses indicate that the digital services trade has a significant positive long-run effect on Gross Domestic Product (GDP) growth in all five regions. For every 1% increase in digital services trade, GDP in the OECD region increases by 6.75%, followed by Europe at 3.19%, 2.11% in Latin America, 1.02% in Asia, and is lowest in the African region panel at 0.82%. The static FE analyses also shows similar results. These findings confirm the hypothesis that deep internet/digital penetration positively impacts the efficiency of digital services trade. The study, therefore, recommends that policymakers from developing world regions should increase investments in digital deepening infrastructure which should include among others, promoting, policy and regulatory measures that augment digital infrastructure installations in rural places, developing the digital skills to mitigate digital illiteracy, and promoting the adoption of cutting-edge digital technologies.