Information and Communications Technology (ICT) and Trade in Emerging Market Economies

This paper examines the effects of information and communications technology (ICT) on international trade in emerging markets. Using panel data for 40 emerging market economies (EMEs) for a period from 1995 to 2010, we estimate fixed effects models of exports and imports with ICT as the main explanatory variable of interest. Our ICT variables include the growth of telecom investment, international Internet bandwidth, Internet subscriptions per 100 people, and the number of Internet hosts per 100 people. The first two variables represent ICT infrastructure while the last two represent the use of ICT. We use the share of total exports and of total imports in GDP as the dependent variables. Additionally, we consider the GDP share of exports and imports for goods and services separately. The main control variables are: per capita GDP growth, population growth, and country and year fixed effects. The empirical results overwhelmingly suggest that Internet subscriptions and Internet hosts have significant positive impacts on both export and import shares in EMEs. Thus, the trade enhancing effect of ICT does not depend on ICT infrastructure or ICT capability per se but on its use. This result is robust to a number of sensitivity checks: generalized method of moments (GMM) estimation with lagged independent variables as instruments; inclusion of all four ICT variables together; shorter sample period; a subsample of EMEs; dynamic specification with lagged dependent variable; and an alternative model specification with additional variables. These results suggest that policies to encourage the use of ICT would have a positive impact on trade in EMEs.