In this paper, we investigate the role of digital trade, especially exports of ICT services, in supporting economic development. Using a country-level panel dataset covering 150 countries for the period 2005 to 2020, we find that specialization on ICT service exports has a developmental effect, with countries that graduate to middle- or high-income status accounting for a larger share of global ICT service exports.
Our results suggest that a percentage point increase in the share of ICT service exports in GDP is associated with a 0.53 percentage point increases the share of non-ICT service exports in GDP. A similar increase in magnitude of ICT service exports would increase TFP growth by 0.079 percentage point and the number of adults who use digital financial services by 3.4 percentage point.
However, our analysis documents a rising concentration of ICT service exports in fewer countries, outpacing the trends for ICT goods exports and non-ICT services and goods exports. We identify both international and domestic digital connectivity as key drivers of trade in ICT service exports, with domestic digital connectivity crucial in determining top ICT service exporters.
