Digitalization and country distance in international trade: An empirical analysis of European countries

Abstract

This study examines the influence of digitalization to reduce the detrimental impact of country differences on exports and imports. It employs the Euro Commission's Digital Economy and Society Index (DESI) starting in 2015 to measure the European countries' digitalization level and its positive impact on declining international trade suffering from country distances. Digitalization's moderating influence on the connection between country distance and trade activity is evaluated using the System GMM technique. Empirical evidence has proven that digitalization can positively moderate the unfavorable reaction of religion and geographic distance on international trade. Besides, digitalization also helps countries overcome language, administration, and economic gaps to promote export activities. These results offer encouragement to implement digitalization in countries to stimulate international trade.