Digitalization, International Trade, and Arab Economies: External Policy Implications

Digitalization, along with the associated servification of economies, is both a driver and reflection of structural transformation. Digital technologies offer potential opportunities for Arab countries to diversify production and (intra-regional) trade, including complementing revealed comparative advantages in travel and transport services, enhancing participation in extant manufacturing value chains, and enhancing resilience to international shocks. Harnessing digitalization opportunities is conditional on an institutional and regulatory framework that supports access to and use of digital technologies and market platforms by micro, small, and medium-sized enterprises (MSMEs). The track record of exports of nontravel/transport services of many Arab countries is very heterogenous. The high service export growth rates for some countries demonstrate the potential that exists. However, the lack of dynamism in other Arab countries, despite proximity to large markets, suggests greater focus is needed on putting in place a supportive policy environment. Growth in digital trade is conditional on satisfying regulatory standards for data protection and the provision of services and digital products. Countries in other regions are actively pursuing digital trade cooperation, complementing trade agreements that encompass service trade and investment, and engaging in discussions on e-commerce, service regulation, and MSMEs. Many Arab countries have neglected services trade liberalization and are not engaged in international discussions to define good regulatory practices for the digital economy and identify measures to facilitate and support digital trade. This lack of attention may reduce the prospect of capturing digitalization opportunities.