Global Networks of Trade and Bits

TL;DR

This paper analyzes the topological structure of international trade in digital services and compares it with traditional trade, revealing that digital trade networks are sparser, less hierarchical, and less distance-sensitive.

Contribution

It introduces a novel approach to analyze digital trade networks using Internet topology data as a proxy for the digital economy at the country level.

Findings

Digital trade networks are sparser and less hierarchical.

Trade in bits resembles high-skill manufactured goods more than total trade.

Distance impacts physical goods trade more than digital services trade.

Abstract

Considerable efforts have been made in recent years to produce detailed topologies of the Internet. Although Internet topology data have been brought to the attention of a wide and somewhat diverse audience of scholars, so far they have been overlooked by economists. In this paper, we suggest that such data could be effectively treated as a proxy to characterize the size of the "digital economy" at country level and outsourcing: thus, we analyse the topological structure of the network of trade in digital services (trade in bits) and compare it with that of the more traditional flow of manufactured goods across countries. To perform meaningful comparisons across networks with different characteristics, we define a stochastic benchmark for the number of connections among each country-pair, based on hypergeometric distribution. Original data are thus filtered by means of different thresholds, so that we only focus on the strongest links, i.e., statistically significant links. We find that trade in bits displays a sparser and less hierarchical network structure, which is more similar to trade in high-skill manufactured goods than total trade. Lastly, distance plays a more prominent role in shaping the network of international trade in physical goods than trade in digital services.