Effects of ICTs on the Terms of Trade of Sub-Saharan African Economies

Abstract

AbstractThis paper argues that the increasing adoption of information and communication technologies (ICTs) is a factor that improves the terms of trade of sub-Saharan African (SSA) economies. According to new theories of international trade, ICTs can change the terms of trade by increasing productivity, reducing costs, and increasing human capital endowment and specialization. Here, we use World Development Indicators (WDI) and United Nations Conference on Trade and Development (UNCTAD) data over the period from 2005 to 2017 and a vector autoregression (VAR) model on a panel of 39 SSA countries to illustrate the importance of ICTs in this regard. Our results show that the change in the terms-of-trade index is positively affected by the change in the number of internet users as a percentage of mobile phone subscribers in SSA. Furthermore, an impulse response function shows that a shock that would increase the number of internet users by 10 percent of mobile phone subscribers would result in the terms-of-trade index gains of more than 5% within about a year.