The Impact of Host Countries' Digital Economy Development on China's Digital Service Export Trade: Based on Panel Data of Global South Countries

Abstract

Background: Amid accelerating digital globalization and the rise of the Global South, host-country digital economy development has become a crucial driver shaping China’s digital service export trade and South–South digital cooperation. Aims: To investigate the impact of host-country digital economy development on China's digital service exports, shifting the analytical focus from the exporting country to the demand-side determinants in emerging markets. Study Design: Quantitative panel data analysis. Place and Duration of Study: 60 Global South economies, utilizing macro-level panel data from 2014 to 2023. Methodology: We employed a rigorous two-way fixed-effects model to control for unobserved heterogeneity. Mechanism tests were conducted utilizing a two-step approach to examine the intermediate variables of bilateral trade frictions and host-country institutional quality. Heterogeneity analyses evaluated differences across market types and service knowledge intensity. Results: We documented a robust positive trade-creation effect: a one-standard-deviation increase in the host country's digitalization index corresponds to an average growth of approximately 29.6% in China's digital service exports, significantly driving bilateral trade expansion. This effect is particularly pronounced in Global South markets and for high-value-added knowledge-intensive sectors (e.g., intellectual property royalties). Mechanistically, this trade-creation effect is channeled via the reduction of bilateral trade costs and the enhancement of host-country institutional quality. Conclusion: Emerging economies should prioritize joint digital infrastructure investments and hardware-software capacity-building. Cultivating a mutually beneficial global digital trade ecosystem will effectively foster South-South digital trade integration.