Digital technology and international trade: Is it the quantity of subscriptions or the quality of data speed that matters?

Abstract

Information and communication technologies affect global trade patterns through transaction costs on the supply and demand sides. The relevant transaction costs are affected by both the number of telecommunication subscriptions and the speed of the available bandwidth. We test for the differential effects of telecommunication quantity (data subscriptions per capita) and quality (bandwidth data speed per subscription) of fixed and mobile telephony and internet services on countries’ bilateral exports of goods. We use an augmented Gravity Model and control for multilateral resistance. Regression results for 122 countries over 1995–2008 show a significant effect on export performance of both variables. In the sub-sample analysis we find that data speed quality is what matters most for developing countries, while the quantity of subscriptions is more relevant for developed ones. We explain this by the disadvantage developing countries derive from being far from the technological communication frontier in terms of data speed, while the diffusion of additional high speed subscriptions in developed countries open up new markets there. This illustrates the importance of going beyond the traditional assessment of telecommunication infrastructure in terms of the number of subscriptions, and urges both scholars and policy-makers to start considering bandwidth quality.