Evaluating the Effect of Digital Transformation on Improvement of Service Trade in West Africa

Date01 November 2021
DOI10.1177/00157325211032021
Publication Date01 November 2021
AuthorNnanna P. Azu,Philip A. Nwauko
SubjectArticles
Evaluating the Effect of
Digital Transformation
on Improvement of
Service Trade in
West Africa
Nnanna P. Azu1 and Philip A. Nwauko2
Abstract
Digital revolution is instrumental to the wave of globalisation and transformation
of the global economy. But the pace of digital transformation and service trade
is low in the West African region. This article investigates the effect of digital
transformation on the development of service trade in the region. This research
captured digitisation in two standpoints: internet penetration rate and mobile
subscription rate. The Im-Pesaran-Shin unit-root test affirms that the model is
appropriate for panel autoregressive distributed lag estimation method. Adopting
pool mean group estimator, the results attest for the existence of cointegrations
in the model. The estimations reveal that the effect of digitisation on service
trade is a long-run phenomenon. While the result is robust with export, it is not
consistent with import. The long-run positive impact of digitisation on service
export ranges from 0.087% to 0.159%, depending on the proxy for digitisation.
The overall short-run effect is not statistically significant in export and not robust
in import. It is reportedly consistent in some countries but not robust with some
others. The region needs to rally in adopting and adapting to the new face of
technology to improve service trade.
JEL Codes: C23, F14, O33
Keywords
Service import, service export, digitisation, service trade, panel ARDL,
West Africa
Article
1 Economics Department, Air Force Institute of Technology, Kaduna, Nigeria.
2 Economics Department, Nile University of Nigeria, Abuja, Nigeria.
Corresponding author:
Nnanna P. Azu, Economics Department, Air Force Institute of Technology, Kaduna 800213,
Nigeria.
E-mail: phil4azu@yahoo.com
Foreign Trade Review
56(4) 430–453, 2021
© 2021 Indian Institute of
Foreign Trade
Reprints and permissions:
in.sagepub.com/journals-permissions-india
DOI: 10.1177/00157325211032021
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Azu and Nwauko 431
Introduction
Massive development in information and communication technologies (ICTs)
is rapidly transforming the global economy into a digital economy. Digitisation
transforms jobs and skills, it also overhauls industries, especially retailing, whole-
sale and services. Small-scale businesses tend to gain global recognition through
the help of internet. It has multifaceted and decisive roles in various industries and
employments. Hence, Raja et al. (2013) acknowledged that digitisation affects oc-
cupation in two ways; as an industry and occupational tools (Sabbagh et al., 2013;
Sovbetov, 2018). Likewise, Batuo (2015) and Adeleye and Eboagu (2019) opined
that digitisation provides stimuli for economic growth. However, Sabbagh et al.
(2013) admitted that the effect of digitisation differs in economies and acknowl-
edge that developing economies could benet more, and Chaudhry (2017) af-
rmed that the level of implementation is comparatively lower in Africa. Notably,
the West African region is lagging in the pace of digital transformation while at
the same time its service trade is relatively low thereby stirring the essence of this
research; to investigate the impact of digitisation on service trade in West Africa.
The impact of internet/digitisation on international trade has been extensively
researched and substantial evidence suggests that improvement and increased use
of the internet has a positive and significant effect on bilateral trade, especially in
developing economies (Bojnec & Fertö, 2009; Clarke, 2008; Freund & Weinhold,
2004; Kurihara & Fukushima, 2013; Yadav, 2014). These scholars and critics
have managed different samples and estimation technique, but the same gravity
panel approach and goods trade while results remain analogous. Similarly,
Rodríguez-Crespoa and Martínez-Zarzoso (2019) postulated that even though
internet usage influences bilateral trade positively, such influence is more sensi-
tive with ‘product complexity’ than income levels. In order words, estimation is
similar when segmenting by the level of income. Therefore, knowledge segmen-
tation better explains the differences in the impact of digitisation than income
level segmentation.
In another dimension, Freund and Weinhold (2002) examined the influence of
internet on USA’s service trade and reported that improvement of internet across
the borders of the United States is facilitating the growth in service export to the
United States. They further reasoned that a 10% increase in internet penetration
leads to about 1.7% growth in service trade, all things being equal. Concurring to
this development, Choi (2010) attested that the internet facilitates an increase in
bilateral service trade similar to Mallick (2014), and further reports that doubling
internet usage in a country will further simulate service trade by 2–4% increase.
Both Choi (2010) and Mallick (2014) adopted the augmented gravity model. Even
though they implemented some robust estimation techniques, Choi (2010) report-
edly omitted distance variable.
It is evident that digital transformation has revolutionised international trade
through rebutting an initial biasness towards e-commerce initiatives such as Alibaba,
AliExpress, Amazon, eBay, Pinterest, Jumia, Wish, among others. Sovbetov (2018)
accepts that it has changed the structure of economics by reducing transaction, dis-
tribution and marginal production costs and enhancing accessibility and time

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