ICT Infrastructure and Trade in Services: A Cross-country Analysis

Abstract

Share of services in the economy increased drastically in developed as well as developing countries in last couple of decades. However, the share of services was very less in the export basket of these countries due to the mobility constrains associated with services delivery, until 21st century. The drastic development in Information Communication Technology (ICT) in the form of mobile phone and internet played a vital role in removing this constraint in recent years. So the share of services in the total export almost doubled in many countries. Moreover, foreign exchange earnings through services export is the main source to finance technology embodied manufacturing goods import in many developing countries. Services export also had impact on long term economic growth via Total Factor Productivity (TFP). So, ICT induced services export has a prominent role to play in modern liberalised economies. The present study examines the impact of ICT on trade in services with Least Square
Dummy Variable (LSDV) panel data estimation by controlling human capital, socio political conditions and other omitted country specific factors. The study period span from 2002 to 2016, for 34 services exporting countries, which is covering more than 85 percent of total world services export. The present study has two improvement over existing services trade and ICT literature. First, our ICT variable was constructed by a Principle Component Analysis (PCA) on the internet spread, and telephone and mobile phone connectivity, instead of using either internet spread or a compound index provided by ITU (International Telecommunication Union) as in the literature. Second, this study corrects omitted variable bias which is observed as a major problem in the literature, by employing LSDV estimation. We found that better ICT infrastructure increases share of services in total export. Moreover, ICT has contributed for the services export of developing countries than for developed countries in recent years. So, the policies to increase mobile phone connectivity and internet can restructure the trade pattern of a country. Countries with better human capital and healthy socio political conditions  .