Impact of Digital Service Trade Barriers and Cross-Border Digital Service Inputs on Economic Growth

Abstract

In this digital era, digital service trade has brought significant benefits to the global economy. However, this trade also poses considerable challenges to international trade regulations. This study aims to analyze the impact of cross-border digital service trade on the economic growth of importing countries while determining how digital trade barriers moderate this effect. We established a theoretical model that meticulously delineates various restrictive regulatory measures that can hinder digital service inputs. We further developed a comprehensive and detailed trade barrier index based on these measures. A three-dimensional fixed effects panel regression model was used to analyze data from six types of digital services in 48 economies from 2005 to 2021. The findings indicated that cross-border digital service inputs enhance importing countries’ economic growth, highlighting the substantial economic value of these inputs. However, trade barriers in digital services were also found to diminish this positive effect. Specifically, an increase in the digital service trade barriers in importing countries constricts the range and quality of selectable digital services, which might adversely impact national economic growth. The inhibitory effect is stronger for countries with a “Limited Model” for personal data transfers and processing.