Digital Trade and Financial Development in European Transition Economies

ABSTRACT Advancements in high‐speed Internet and mobile technology in the 2000s accelerated global digital trade growth. However, financial development in European transition economies remains low, and its connection to digital trade remains largely unexplored. This study analyzes how digital trade influences financial development, focusing on Information and Communication Technology (ICT) services exports, goods trade, internet penetration, and key financial metrics, including development, institution, and market indices. The results reveal an inverted U‐shaped relationship, where initially digital trade growth strengthens financial depth, access, and efficiency, but benefits decline beyond a threshold. Current digital trade levels remain below the optimal point for maximizing financial development, highlighting the need for further growth.