Service sectors and trade through a digital medium: a modified gravity approach

Given the increasing role played by services delivered through online platforms, this study is a first to undertake cross-sectoral examination of the trade performance of nine service sectors exploring only the digitally delivered components of these. The article makes two main contributions. First, in the absence of bilateral trade data, it develops gravity-like indices using a methodology to capture the influence of common variables used in the gravity literature. Sector-level unilateral import data on the WTO, GATS mode 1 of service delivery or cross-border trade, which is largely synonymous with digital trade, is drawn from the relatively new OECD-WTO-TiSMoS database. Next, the constructed gravity-like variables along with an index of the importer’s services trade restrictiveness, the level of internet penetration of the importing economy and their interaction are examined across the said sectors using a panel of 50 countries for the years 2014–2017. The findings of the constructed gravity variables support earlier literature using bilateral service trade data. The outcomes of the interactions reveal that the trade dampening effect of larger service trade restrictions is somewhat mitigated by deeper internet penetration in consumer services like education in contrast to others like insurance & financial services which are usually producer services.