Visiting Fellows Program Report: The Impact of Digital Technology on Digital Trade and Welfare: Evidence from the CAREC Region

The CAREC Institute has released a new Visiting Fellows Program report authored by Dr. Ivan Li, titled The Impact of Digital Technology on Digital Trade and Welfare: Evidence from the CAREC Region. The study assesses how digital technology affects digital trade development and welfare across CAREC economies and identifies key factors driving regional cross-border digital trade growth.

Using a structural gravity framework and bilateral trade data from 2005 to 2021, the study constructs bilateral digital technology measures covering infrastructure, components and platforms to identify the channels through which technology reduces trade costs. The results show that physical digital infrastructure is the strongest correlate of digital trade; a one-standard-deviation increase in infrastructure is associated with a 43% average rise in bilateral digital trade across sample country pairs. In contrast, digital-specific provisions in trade agreements deliver only limited marginal gains and play only a limited role in driving digital trade growth.

The report’s scenario simulations assess the potential economic gains from regional digital infrastructure improvement. For CAREC economies with relatively inadequate infrastructure, lifting their facilities to the regional median level could bring an additional USD 915 million in annual digital services exports, while upgrading relevant infrastructure to the ASEAN standard could generate annual gains of USD 1.19 billion.

Based on empirical results, the author puts forward a phased policy proposal suitable for CAREC member states. It suggests advancing physical digital infrastructure improvement prior to full regulatory harmonization, so that policy arrangements can adapt to local digital development conditions. The two-phase approach first improves basic regional digital connectivity to consolidate development foundations and then promotes infrastructure upgrading toward international standards. This evidence-based policy idea provides practical references for advancing the CAREC 2030 Strategy and narrowing regional digital development gaps.