The digital world that trade created: Evidence from the information technology agreement

Since the early 21st century, global digitalization has accelerated, driving transformative shifts across sectors such as production, transportation, and trade. This study investigates how trade liberalization in information and communication technology (ICT) products fosters global digitalization. Using the signing of the Information Technology Agreement (ITA) as a quasi-natural experiment, we employ a staggered difference-in-differences (DID) approach with country-level panel data from 1995 to 2015. Our findings indicate that the signing of the ITA significantly increases digitalization levels, measured by internet penetration, in signatory countries. The effects are particularly strong in developing countries, as well as in economies with higher pre-agreement ICT tariffs, better telecommunications infrastructure, and higher regulatory quality. Mechanism analysis reveals that the ITA promotes digitalization primarily by reducing ICT trade barriers and catalyzing cross-border digital mergers and acquisitions (M&As). These results underscore the critical role of digital goods trade in shaping global digital transformation.