Digital divide and bilateral trade in Africa

This paper contributes to the literature on the discussed effects of digitization on bilateral trade in African countries over the period 1995-2021. Our methodology consists of two main steps. First, we calculate original digital divide indicators using both an absolute and bilateral approach. In the second step, we link the calculated indicators to measures of bilateral trade. Given the characteristics of the data, we apply the Poisson Pseudo Maximum Likelihood (PPML) estimator. Subsequently, we deepen the empirics by disaggregating the effect of the digital divide on bilateral exports and imports, estimating the effect of the bilateral digital divide (including the sign of the gap) on bilateral trade, further controlling for omission bias by augmenting the basic specification of the gravity model, using several estimators competing with PPML, further controlling for fixed effects and multilateral resistances with PPML with High Dimensional Fixed Effects, controlling for endogeneity with IV-Poisson regression, then by addressing the issue of uncertainty with Bayesian techniques. All these techniques led us to the key finding that the digital divide is a limiting factor for bilateral trade in Africa. In other words, the distance of countries from complete digital coverage and digital inequalities between countries hurt bilateral trade in Africa.