Sources of comparative advantage in data-related services

Abstract

Does digital infrastructure increase trade benefits in services, and how large are these trade benefits? This paper uses the prevalence of countries’ data centres and secure internet servers to investigate the impact of data-related infrastructures on services trade. Data centres and internet servers facilitate the production and trade of many service sectors reliant on software technologies. Therefore, digital infrastructures are complementary sources of comparative advantage in the more data-reliant sectors. Instrumental variable regressions underline this trade impact by using as instruments a country’s exposure to natural hazards since 1900, such as earthquakes, floods and droughts. Overall, data infrastructures are an important and exogenous determinants of specialization patterns in services dependent on software.