The Impact of AI and Cross-Border Data Regulation on International Trade in Digital Services: A Large Language Model

The rise of artificial intelligence (AI) and of cross-border restrictions on data flows has created a host of new questions and related policy dilemmas.This paper addresses two questions: How is digital service trade shaped by (1) AI algorithms and (2) by the interplay between AI algorithms and cross-border restrictions on data flows?Answers lie in the palm of your hand: From London to Lagos, mobile app users trigger international transactions when they open AI-powered foreign apps.We have 2015-2020 usage data for the most popular 35,575 mobile apps and, to quantify the AI deployed in each of these apps, we use a large language model (LLM) to link each app to each of the app developer's AI patents.(Thislinkage of specific products to specific patents is a methodological innovation.)Armed with data on app usage by country, with AI deployed in each app, and with an instrument for AI (a Heckscher-Ohlin cost-shifter), we answer our two questions.(1) On average, AI causally raises an app's number of foreign users by 2.67 log points or by more than 10-fold.(2) The impact of AI on foreign users is halved if the foreign users are in a country with strong restrictions on cross-border data flows.These countries are usually autocracies.We also provide a new way of measuring AI knowledge spillovers across firms and find large spillovers.Finally, our work suggests numerous ways in which LLMs such as ChatGPT can be used in other applications.