The Effects of Digital Trade Policies on Digital Trade

As digital trade expands worldwide, the importance of policy factors in digital trade is also garnering attention. However, the effectiveness of digital trade-related policies on digital trade flow is empirically under-investigated because of challenging data requirements. To overcome this, we combine recently developed but separately used digital trade-related datasets to empirically test how digital trade policies affect digital trade flows using a panel gravity model. In particular, we examine the effects of digital trade policies from two dimensions: domestic regulations and bilateral trade agreements. Our results reveal that a pair of countries experiences an increase in digital trade flow when they have a trade agreement containing digital trade-related provisions. This tendency is even stronger when digital trade agreements contain more specific rules. On the contrary, domestic regulations recognized as digital trade barriers inhibit digital trade flows, and their negative effect is significant when the regulations are implemented by the importing country rather than the exporting one. Decomposing the barriers into several areas of regulations, we also examine which area is more crucial than the others