GMM Analyses of the Effects of Digital Services Trade on Economic Growth of Low, Middle and High Income Countries

Abstract

Objectives: To analyze the effect or impact of Digital Services Trade on economic growth (GDP) of a panel of Low, Middle and High Income Countries. Study Design: Panel Quantitative Study. Methodology: Dynamic Difference GMM (Diff-GMM) and System GMM (Sys-GMM), Panel pooled OLS (POLS) and Fixed Effects (FE) models were employed in the analyses. Results: The System GMM estimator seems to predict that, ceteris paribus, a 1 unit increase in digital services exports significantly impacts GDP growth in Low and High Income countries panels in the short run by 5.7% and 52.4% respectively. The panel POLS models estimate that digital services exports cause a significant long run increase in GDP in High income countries by 39.67% relative to 6.68% in the panel of Middle Income countries and negative growth in Low income countries of 7.74%. The FE models predict that for every 1 unit increase in the number of people using the internet, GDP significantly increases by 42.7%, 27.8% and 0.03% in the Middle, High, and Low Income countries panels respectively. Conclusion: The findings of this study indicate that generally, digital services trade seems to have a significant positive effect on GDP of all country panels. However, Low and Middle Income countries are lagging behind. Therefore, this study recommends that, to promote digital trade driven economic growth, the panel of Low and Middle Income countries’ policy makers should increase investments in both institutional and physical digital infrastructure that enable more people, Small and Medium enterprises(SMEs) and rural populations have access to stable, high speed and affordable digital services.