Estimating the Welfare Effects of Digital Service Trade Liberalisation

ABSTRACT Although digital trade has emerged as a new phenomenon in international trade (WTO, 2018), measuring its evolution and its impact on countries' welfare remains challenging. As the scope of digital trade continues to evolve, our paper specifically focuses on digitally delivered trade and develops a methodology to quantify its welfare effects on different countries. Using the OECD Digital Services Trade Restrictiveness Heterogeneity Index (DSTRHI), we estimate country‐ and sector‐specific trade elasticities for digitally delivered services across 44 countries from 2014 to 2018. Our findings show emerging economies generally have lower digital services trade elasticities, which might be related to the stricter supervision these countries impose. In addition, this paper also estimates the elasticity of digital services trade across specific categories: infrastructure and connectivity (1.647), payment systems (1.635), electronic transaction (1.347), intellectual property rights (1.7) and other barriers (1.329). These estimates reveal the diverse impacts of digital services trade liberalisation on different industry sectors. Then we incorporate these elasticities into a multi‐sector structural gravity model to explore sectoral and cross‐country heterogeneity in welfare effects. Our research indicates, holding other conditions constant, welfare effects have increased globally from 3.5% in 2014 to 4.8% in 2018. This paper provides a robust empirical analysis into the heterogeneous impacts of digital services trade liberalisation.