Digital Services Trade and Economic Capacity: The Moderating Roles of Innovation and Employment

This study examines the relationship between digital services trade and economic capacity, along with the moderating factors, utilizing dynamic panel data models spanning 144 countries from 2010 to 2023. Findings suggest that digital services trade exerts a positive and significant effect on economic capacity, with technological innovation playing a more pivotal role than employment in moderating this relationship. In high- and upper-middle-income economies, the moderating implication of employment is positive but relatively modest, suggesting a greater reliance on productivity and innovation-driven gains. In contrast, in low- and lower-middle-income economies, labor absorption remains a substantial driver of economic capacity increases.