The Digital Economy, Globalization and the Development of Trade in Services: Empirical Evidence from a Cross-Country Panel

With rapid digitalization and the expansion of global service trade, whether the digital economy strengthens cross-border service provision has become a central question in international trade. Using a panel of 136 countries over 2012 to 2022, this study constructs a composite Digital Economy Index (DEI) based on four dimensions: digital infrastructure, digital usage and network quality, digital industries and trade, and digital institutions and governance. Employing a two-way fixed effects model with country and year fixed effects and two-way clustered standard errors, we find that digital economy development is associated with a significantly higher share of service trade in GDP. The proposed mechanisms, operating through lower transaction costs, greater service tradability and supply upgrading, and stronger digital governance, are theoretically grounded and find indirect support in the heterogeneity and moderation results. Heterogeneity analysis shows that this association is stronger in countries with more advanced digital foundations, more developed service sectors, and higher government effectiveness. Globalization, measured along economic, social, informational, and financial dimensions, significantly amplifies the relationship, indicating complementarity between digital capability and global connectivity. Across countries, digital development is systematically associated with wider participation in service trade, and the strength of that association is shaped by digital infrastructure, institutional quality, and global integration.