Shifting into Digital Services: Does a Financial Crisis Matter and for Who?

Abstract

Abstract Did trade patterns in services change into activities that were more digital-intense after the Global Financial Crisis (GFC) of 2008, and was this shift structural? This paper uses a Difference-in-Difference (DID) approach to investigate whether services trade became more digital-based after the GFC in 2008. It finds support that the GFC formed a break from the previous period that caused services trade to become more digital – although there are signs that this had already started before 2008. Countries with high internet usage and a comparative advantage in digital-intense services, such as R&D, information exchange, computer services, and charges for Intellectual Property Rights (IPR), on average saw post-GFC a 6% increase in global exports compared to other non-digital sectors. More striking is that upper-middle income countries and countries with medium levels of skills also witnessed a sharp increase. These significant outcomes may indicate the direction into which patterns of services trade are likely to turn after the current economic crisis resulting from COVID-19.