Does digital service trade boost technological innovation?: International evidence

Digital technology is profoundly changing the international economic and trade pattern, and digital service trade is increasingly becoming an important carrier of transnational knowledge spillover. This study investigates the relationship between digital service trade and technological innovation. Based on the panel data of 131 countries from 2005 to 2020, empirical results show that digital service trade significantly promotes technological innovation. This study shows that digital service trade can promote technological innovation through four mechanisms: increasing income incentives, accelerating knowledge spillover, triggering trade liberalization, and promoting financial deepening. The results of panel threshold model show that economic development, urbanization, and population aging can lead to regime changes in the innovation effect of digital service trade. In addition, the results of heterogeneity test show that national characteristics such as economic development, per capita income, industrialization, and economic freedom, influence the innovation effect of digital service trade. Our findings have implications for developing an international innovation cooperation system based on digital service trade.