Boosting Trade in Services in the Digitalisation Era: Potential and Obstacles
While international trade in goods is stagnating, the exchange of digital services has been growing strongly over the past years. Some European economies harness the potential of this growth market well – but others lag behind. A new study identifies which countries can make better use of their potential and from which countries they can learn.
Ireland is the country that is the forerunner in trade with digital services. In a ranking of 28 advanced economies that assesses to what extent they harness their potential, Ireland finished in the pole position. Also Belgium performed well while many large economies, such as France, Italy or Germany lag far behind and make insufficient use of their potential in this area. In the German case, the reason for its bad ranking is a lack of good infrastructure but also a hesitancy of business and consumers in the adopting of new technologies. These are results of our recent comparative study.
“23 percent of international trade is presently in services, with a growing tendency," said our economic expert Christian Bluth.
In particularly the sectors of telecommunication, IT-services, publishing and business services underwent an important structural change in recent years and use digital tools intensely.
The study also shows that there is still potential to improve. For Europe as a whole, there is a significant gap to the international frontier in the adoption rates of digital technology in enterprises. Also, broadband internet – both landline and mobile – is not as widely available as in the international leader country. These issues ought to be improved. However, there is also some good news: The gap between best practices in Europe and at the international level is not large for most indicators considered in the study. Therefore, a digital strategy can be built on expanding best policies across EU member states.
A competitive digital services sector is not only important for trade in services, it also supports trade with goods. Since many manufacturing companies make increasing use of services, an improved productivity of the services sector will help them, too.
The study is based on an analysis of the European Centre for International Political Economy (ECIPE) in Brussels. Based on a gravity model, it estimates a theoretical potential for trade in services and contrasts it with the observed values. The ranking is derived from the deviation of the actual from the potential values. In order to explain the differences, the authors undertake a frontier analysis as a second step. Here, international comparisons of indicators for digital technology adoption are being presented.