The Association between the Internet and Service Trade in the U.S.: A Panel Data Evidence

Abstract

The development of the internet has reduced transaction costs for a several decades in international trade and consequently it facilitates trade in services. In this perspective, the study used panel data for the U.S. and its 37 trading countries from 2006 to 2021. This study empirically examines the impact of the development of the internet on service trade, service exports and service imports respectively by utilizing the gravity type model of trade. Regression results show that the internet has played an import role on accelerating service trade in the U.S. First, the results indicate that the development of the internet has positive and significant effects on service trade, service exports and imports. Secondly, the measured effect of the internet on the service exports is bigger than that of its effect on service trade and service imports. From this result, it can be seen that the development of the internet has contributed more to the increase in service exports than compared to that of service imports in the U.S. Consequently, this result provides the direction of government policy insight for the future to promote more service trade and in turn lead to more service account surplus in the U.S.