The Impact of ICT on International Trade: A Gravity Model Analysis

Abstract

This thesis investigates the impact of Information and Communications Technology (ICT) on bilateral trade flows using data from 188 countries between 2010 and 2020, sourced from CEPII and World Development Indicators (WDI). Employing a fixed effect PPML gravity model for panel data, the study examines the influence of ICT indicators, such as mobile cellular subscriptions, internet servers, broadband connections, and internet usage, on trade flows. The analysis categorizes countries into four income groups based on World Bank classifications to explore the varying effects across different economic contexts.

The findings indicate that traditional gravity model variables (GDP, distance, contiguity, and common language) are consistently significant predictors of trade flows and align well with established hypotheses. In contrast, the impact of ICT variables on trade flows presents mixed results. While internet usage shows a positive and significant effect in upper middle-income countries, most ICT indicators do not exhibit significant effects across the different income groups. Additionally, the interaction model reveals a weak but positive significant effect on trade flows when both trade partners invest in ICT simultaneously. However, the individual effects of ICT remain largely insignificant or negative. This highlights the need for further research to better understand the complex interplay between technological and economic factors in international trade.