The Impact of Information and Communication Technologies on International Trade: The Case of MENA Countries

Questions for General Evaluation

Reviewer’s Evaluation

Response and Revisions

1.Establish an area to research by highlighting the importance of the topic, and/or making general statements about the topic, and/or presenting an overview of current research on the subject.

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2.Identify a research niche by opposing an existing assumption, and/or revealing a gap in existing research, and/or formulating a research question or problem, and/or continuing a disciplinary tradition.

1+2. The ICT revolution, which over the last decade has led to a rapid expansion in the digitization of the economy, is particularly important for boosting trade worldwide, and especially in the MENA countries. It improved the prospects of the global markets for a growing number of companies, and has already offered them new opportunities created by improved electronic connections and a greater consumer propensity to shop online.

While it is true that there is a "digital divide" related to highly disparate performances both within and across countries, and even sub-regions, in an area whose boundaries are more often blurred, the fact remains that overall the ICT sector in the region has seen undeniable progress over the last few decade. Even so, in most MENA countries, the digital economy only accounts for between 1% and 8% of GDP, even in markets where e-commerce is gaining popularity, such as the United Arab Emirates (UAE), Saudi Arabia and Egypt [1]. Similarly, despite the widespread availability of Internet connections and digital devices in the region, these tools are used primarily to access social media rather than to create new businesses or new sources of employment. If the current trend tends to widen inequalities between most regions of the world and many MENA countries, it is because multiple obstacles are preventing the latter from embarking on the path of the digital economy and e-commerce. Indeed, access to an inadequate ICT infrastructure, relatively low literacy levels, the dominance of a state-owned monopoly over the telecommunications sector, the absence of a favorable legal and regulatory framework, and lack of digitally-skilled personnel are some of the major obstacles to the emergence of the digital economy in the region in general, and in the public sector in particular. This is especially true in rural areas [2].

It should be noted within this research that in the past few years the questions concerning the recent rise of ICTs and the expansion of international trade have gained significant interest since they are at the heart of the global economic debate and development. The stakes raised by this debate would be paramount because while international trade and investment in ICTs are widely recognized as key drivers of economic integration, global growth and prosperity, they also raise concerns about their redistributive effect in the context of growing inequality (OECD, 2018) .

This paper contributes to the empirical literature on the effect of ICT on international trade. While the empirical studies on this subject have expanded to cover mainstream global samples (Freund and Weinhold, 2004), such an extension misses the MENA countries. Notably, there is a significant lack of econometric research on the adoption of ICT in this region. And this study comes to fill this gap in many ways. Indeed, compared with earlier studies this paper contributes to the trade literature in four ways. First, the novelty of this work is that to the best of the authors’ knowledge, we are the first to examine the impact of ICT on international trade for a group of MENA countries selected based on the availability of ICT data with the latest data spanning from 2005 to 2019. Second, it contributes to the understanding of the ICT effects on bilateral trade in the period of greatest Internet diffusion for both developed and developing countries (1996–2014). Third, according to a review of the literature, this is the first systematic GMM-S empirical analysis that relates the ICT to trade in the MENA region. Fourth, in contrast to most previous studies, in this paper we use an aggregate measure of ICT named ICT development index (IDI) which is a composite index combining 11 indicators grouped by the three sub-indices: access, usage and skills, and we explore also how these sub-indices separately affect services trade differently. Likewise, supplementing and strengthening the MENA library with modern standard studies, especially with regard to Dynamic Panel Data, is considered a qualitative addition to the MENA library and the economic researcher.

Thus, this study aligns itself with the existing body of literature primarily highlighting the positive impacts of ICTs on international trade. However, it narrows its focus to a more specific context: international trade in services in the MENA region. Based on the foregoing, the objective of this empirical study is to address the following research problem: how does the diffusion of ICT, −however low it may be−, affect international trade in the group of MENA countries during the period 2005–2019? Therefore, we have to test the following main hypothesis: the increase in ICT has a positive impact on international trade in MENA region. To do this, we study: 1) the effects of ICT on service exports, 2) the effects of ICT on service imports, and finally 3) the effects of ICT on total trade (imports + exports) in services.

More precisely, the paper investigates the impact of ICT on exports, imports, and total trade in services for 19 MENA countries. And we can briefly and overall summarize the results obtained as follows. By using IDI, a composite index of ICT, the paper finds that ICT negatively impacts exports of IT services and positively impacts the imports and total trade of financial services. The sub-indices of ICT have differing impacts on IT, travel, and total trade in services.

The rest of the paper is organized as follows. Section I reviews the theoretical and empirical literature on the relationship between ICT development and international trade in services. Section II discusses the data and methodology used for our empirical research based on dynamic panel data estimated by the GMM-S technique over the 2005-2019 period. Our model is particularly inspired by the study of [3-7]. The aim is to study the impact of the most important variables highlighted in the economics literature on the separate evolution of cross-border services transactions, namely imports, exports and total trade (imports + exports) in services. Our main hypothesis is that the evolution of international trade volume in services is influenced by specific technological and macroeconomic factors. The results of the model are reported and discussed in Section III. Finally, some recommendations are proposed in the conclusion.

3.Place your research within the research niche by stating the intent of your study, outlining the key characteristics of your research, describing important results, and giving a brief overview of the structure of the paper. The Discussion lacks a critical synthesis and comparison of the primary data with the literature. The purpose of the discussion section is to interpret and describe the significance of your findings in relation to what was already known about the research problem being investigated and explain any new understanding or insights that emerged from your research. The discussion connects to the introduction through the research questions or hypotheses and the literature you reviewed. The Discussion should include a critical synthesis and comparison of the data with the literature. The discussion clearly explains how your study advanced the reader’s understanding of the research problem from where you left them at the end of your review of prior research. The content of the discussion section of your paper should include : •    Explanation of results: Comment on whether the results were expected for each set of findings ; go into greater depth to explain unexpected or incredibly profound findings. If appropriate, note any unusual or unanticipated patterns or trends that emerged from your results and explain their meaning concerning the research problem.

•References to previous research: Either compare your results with the findings from other studies or use the studies to support a claim. This can include re-visiting key sources already cited in your literature review section or saving them from citing later in the discussion section if they are more important to compare with your results instead of being a part of the general literature review of prior research used to provide context and background information.

• Deduction: A claim for how the results can be applied more generally. For example, describing lessons learned, proposing recommendations that can help improve a situation, or highlighting best practices.
• Hypothesis: A more general claim or possible conclusion arising from the results [which may be proved or disproved in subsequent research]. This can be framed as new research questions that emerged from your analysis.

Conclusion
The Conclusion does not adequately discuss the theoretical and managerial implications of the study. Summarize your thoughts and convey the larger significance of your research. Identify and discuss how a gap in the literature has been addressed and demonstrate the importance of your ideas. Introduce possible new or expanded ways of thinking about the research problem.

Also, state the ideas for future research in the conclusion. Make sure you create 3 subsections in the Conclusion: 1) Theoretical implications, 2)Managerial Implications, and 3) Ideas for Future Research.
You may wish to study published articles that examine perspectives on this topic, which will give you an idea of how you must revise your article.

3.Comment: we made every effort to answer the research questions raised in 3. to the best of our ability. Nevertheless, directly comparing our results with those of other econometric studies is challenging due to a fundamental difference in approach. Many of these studies have focused on the estimation of the effects of an aggregate index, while our study used a more detailed, disaggregated approach (IDI). For example, although Freund and Weinhold (2002) consider U.S. exports and imports of 14 service items, they do not examine the effects of ICT separately for each item. Furthermore, Choi (2010) and Liu and Nath (2013) focus on aggregate service exports and imports. Moreover, it is important to mention that the remaining discussion of the issues raised in 3. is presented in the section dedicated to the discussion of the obtained results.

3. Despite the possibility that ICT might impact international trade since some services (financial service, IT services) can be delivered directly over the internet, there is little evidence that this is the case in MENA region. A related concern is that the trade behavior might be related to overall economic development (see for example Clarke, 2007). In other words, these results are rather a reflection of structural fragilities of these economies given that international trade depends on a global policy environment and potential interdependencies between key macroeconomic variables. So, these results highlight the need for MENA economies to move towards an economic model that reconciles the development of ICT and efforts which include improvement in their trading environment, productivity, domestic market competition, price mechanisms, and managerial skills, which can promote their international trade.

3. Theoretically speaking, the contribution of ICTs to the growth of technology-based services is obvious (Wang and Choi, 2018; Clarke and Wallsten, 2006). However, our estimation indicates that ICTs adoption would be negatively correlated with IT services export. A possible explanation of this inconsistency of sign has is that an increase in ICT has access contributes to the increase in domestic demand for these services and, as such, exports and total trade decrease (Roy et al., 2022).

3. Conclusion : The paper investigates the impact of ICT on exports, imports, and total trade in services for 19 MENA countries. Using IDI, a composite index of ICT, the paper finds that ICT negatively impacts exports of IT services and positively impacts the imports and total trade of financial services. The sub-indices of ICT have differing impacts on IT, travel, and total trade in services. In summary, our findings indicate that introducing ICTs in MENA countries has had a marginal and low impact on the growth of international trade in services with the rest of the world. It is important to note that, unlike many previous studies that often report positive effects of ICTs on trade, our study reveals modest positive effects on MENA countries. In fact, there is scant evidence, particularly during the 2005-2019 period, to suggest that ICT adoption alone is the decisive factor for increasing international trade in services. In other words, our results suggest that expansion of international trade does not solely stream from the adoption of ICTs. This is particularly true given the multifaceted challenges, both economic and political, that this region faces, hindering its integration into the global economy, as we mentioned in the introduction. Additionally, it is worth noting that the MENA region is recognized as one of the most restrictive when it comes to trade in services, as highlighted by the World Bank (2020).

From the practical point of view, and to harness the potential benefits offered by ICTs, it is strongly recommended that these countries initiate comprehensive structural reforms, implemented concurrently with an accelerated adoption of these technologies. This adoption should cover various fronts, including enhancing internet accessibility, mobile and broadband infrastructure, promoting e-commerce practices, and fostering digital payment methods. These channels serve as crucial conduits through which the tangible economic impacts of ICTs are likely to manifest themselves in the MENA region's economies. The requisite reforms should primarily center on redirecting trade policies to dismantle numerous lingering quantitative barriers. These barriers impede international trade for MENA countries and constrain their integration into global markets. Additionally, there is a need for institutional reforms that facilitate trade, such as initiatives aimed at improving business productivity (Esfahani, 1991 et Feenstra et al., 1997), fostering increased competition in the local market (including price competition), and enhancing corporate governance capabilities. These reforms must extend beyond conventional practices to ensure the survival and thriving of businesses in this evolving landscape.

Like most research works, the current review is not without its limitations that should be considered in the future. For instance, one limitation is that we used data for 19 MENA countries, and therefore, we can find it difficult to generalize the results to all other MENA countries. However, this is due to the lack of data related to the variables of importance to the MENA countries that were not considered within the study sample. Second, in this research, we study the relationship between ICT and international trade for a group of MENA countries only, which makes the results one-sided. We recommend that researchers in the future conduct a comparative study between MENA countries and the group of high-income countries, middle-income countries, and low-income countries. It is also possible that future studies will focus on the role of ICT development in inclusive trade.

Questions for General Evaluation

Reviewer’s Evaluation

Response and Revisions

1-What is the research gap and how this study tries to minimize the gap?

1. This paper contributes to the empirical literature relevant to the effects of ICTs on international trade. Despite the fact that the available literature on this matter has been extended to transnational levels (Freund and Weinhold, 2004), this does not apply to MENA countries. The econometric analysis of ICT adoption is wanting. And this study comes to fill this research gap in many ways. Indeed, compared with earlier studies this paper contributes to the trade literature in three ways. First, the novelty of this work is that to the best of the authors’ knowledge, we are the first to examine the impact of ICT on international trade for a group of MENA countries selected based on the availability of ICT data with the latest data spanning from 2005 to 2019. Secondly, according to a review of the literature, this is the first systematic GMM-S empirical analysis that relates the ICT to trade in the MENA region. Third, in contrast to most previous studies, in this paper we use an aggregate measure of ICT named ICT development index (IDI) which is a is a composite index combining 11 indicators grouped by the three sub-indices: access, usage and skills, and we explore also how these sub-indices separately affect services trade differently. Likewise, supplementing and strengthening the MENA library with modern standard studies, especially with regard to Dynamic Panel Data, is considered a qualitative addition to the MENA library and the economic researchers.

2. All figures in tables should have three digits.

2. In all the tables the results are now exhibited with three decimals places.

3. The theoretical foundation should be improved in order to support the model.

3. The specification of this model was based on some of the conclusions drawn from the empirical literature in previous work. The model adopted helps to estimate the effects of ICTs represented by the IDI variable of interest, and of a vector consisting of certain independent variables including population, GDP per capita, and the financial development on international trade in the MENA region. These variables are among the most important determinants of services trade flows. In this study, the variables GDP per capita and population are introduced in order to control the “wealth/income effects” and the “size effects” of the market, respectively (Biswas and Kennedy, 2016; Freund and Weinhold, 2002). These variables are often included in aggregate and bilateral trade regressions. For example, Frenkel and Romer (1999) include both variables in a gravity model of trade, arguing that theory does not clearly suggest the better measure; Rose (2004b) includes area directly and population indirectly because he includes logs of both per capita GDP and GDP in a gravity model. The financial development variable is also included to proxy for overall comparative advantage in services in a country. Greater financial development is expected to increase service trade (Choi, 2010).

4. All control variables should have references and justify why they are considered control variables.

4. In this study, the variables GDP/ per capita and population are introduced in order to respectively control the "income/wealth effects" and the "size effects" of the economy/country (see for example Biswas and Kennedy, 2016; Freund and Weinhold, 2002). These variables are often included in aggregate and bilateral trade regressions. For example, Frenkel and Romer (1999) include both variables in a gravity model of trade, arguing that theory does not clearly suggest the better measure; Rose (2004b) includes area directly and population indirectly because he includes logs of both per capita GDP and GDP in a gravity model. The financial development variable is also included to proxy for overall comparative advantage in services in a country. Greater financial development is expected to increase service trade (Choi, 2010).

5. The conclusion part does not answer the research problem, so this part needs to be revised entirely. It does not need to repeat what you mentioned in the research methodology.

5. The paper investigates the impact of ICT on exports, imports, and total trade in services for 19 MENA countries. Using IDI, a composite index of ICT, the paper finds that ICT negatively impacts exports of IT services and positively impacts the imports and total trade of financial services. The sub-indices of ICT have differing impacts on IT, travel, and total trade in services. Hence, generally speaking, we observe that the introduction of ICTs in MENA countries has had only a marginal minor effect on the growth in the volume of services trade with the rest of the world. Therefore, it should be noted, that compared to the previous studies' largely positive results of the effects of ICTs on trade, the results of this study showcase only a marginally positive effect in what concerns MENA countries. In fact, for the period 2005-2019, there is little evidence that ICT adoption alone is a determining instrument to develop international services trade flows. For, as mentioned in the introduction, this region faces several economic and political problems that hinder its integration into the global economy. Indeed, it is considered as one of the most restrictive in relation to services trade.

6. The limitations of the study may mention after the conclusion.

6. Like most research works, the current review is not without its limitations that should be considered in the future. For instance, one limitation is that we used data for 19 MENA countries, and therefore, we can find it difficult to generalize the results to all other MENA countries. However, this is due to the lack of data related to the variables of importance to the MENA countries that were not considered within the study sample. Second, in this research, we study the relationship between ICT and international trade for a group of MENA countries only, which makes the results one-sided. We recommend that researchers in the future conduct a comparative study between MENA countries and the group of high-income countries, middle-income countries, and low-income countries. It is also possible that future studies will focus on the role of ICT development in inclusive trade.

7. The practical and managerial implications are missing from the paper; you need to clearly declare the mentioned parts in the paper. Managerial and practical implications may be stated after the conclusion.

7- From the practical point of view and in order to take advantage of the opportunities offered by ICTs, this study recommends these countries undertake structural reforms to be combined with the acceleration of these technologies adoption (internet, digital payment methods), which represent important transmission channels through which the real economic impact of ICTs is likely to be felt in the MENA region economies. The reforms that need to be implemented shall cover in particular the reorientation of trade policies towards dismantling the multiple (quantitative) obstacles that persist still and hinder the international trade of these countries, and restrict the integration of the MENA region into the world markets. This, also, means continuing institutional reforms that would help facilitate trade such as improving business productivity and increasing competition in the local market, including pricing as well as improving the managerial skills of businesses that, to survive, need to go beyond traditional processes.

Questions for General Evaluation

Reviewer’s Evaluation

Response and Revisions

1.There is no theoretical justification behind the empirical model. What theory informs the structural and functional form of the empirical model?

1.The specification of this model was based on some of the conclusions drawn from the empirical literature in previous work. The model adopted helps to estimate the effects of ICTs represented by the IDI variable of interest, and of a vector consisting of certain independent variables including population, GDP per capita, and the financial development on international trade in the MENA region. These variables are among the most important determinants of services trade flows. In this study, the variables GDP per capita and population are introduced in order to control the “income/wealth effects” and the “size effects” of the market, respectively (Biswas and Kennedy, 2016 ; Freund and Weinhold, 2002). These variables are often included in aggregate and bilateral trade regressions. For example, Frenkel and Romer (1999) include both variables in a gravity model of trade, arguing that theory does not clearly suggest the better measure. Rose (2004b) includes area directly and population indirectly because he includes logs of both per capita GDP and GDP in a gravity model. The financial development variable is also included to proxy for overall comparative advantage in services in a country. Greater financial development is expected to increase service trade (Choi, 2010).

2.In particular, what is the reasoning behind the log transformation of model (2) and (3)?

2.Obviously, model (3) is an extension (logarithmic transformation) of model (2). It is evident that the logarithmic transformation is a technique that makes it possible to "compress" more large values so that the “flattened” distributions become more symmetrical and closer to a normal distribution. Therefore, this technique makes the relationship between variables more linear and reduces the effect of extreme values (see for example Wooldrige JM, Introductory Econometrics : A Modern Approach, 2018). Thus, within our work, any estimation without having performed this logarithmic transformation is likely to bias the results of such estimation.

3.The author(s) used GMM-S to overcome endogeneity of the right-hand variables. Which right-hand variables are endogenous? Did you perform a test of endogeneity? If not, how do you know that the RHS variables are endogenous?

3. Here, the endogeneity source resides in the bias of simultaneity (reverse causality) and the enunciation of the existence of this problem emanates from the lessons learned from economic theory. It has been demonstrated that there is a reverse causality between international trade and the development of ICTs, the internet in particular (Clarke et al., 2005). Indeed, some economists suggest that countries with greater contact with the outside world via trade (or tourism or because of geographical location), are more likely to be developed with respect to digital technology than other countries (Onyeiwu, 2002). However, it is also possible that internet access might also influence trade behavior (Changkyu, 2010 ; Bhujabal and Sethith, 2019). However, within this study, the internet is an indicator of the composite index IDI, that constitutes the theoretical justification for using the GMM-S technique as an estimation method.

4.Model 2 has IDI in logs but model 3 does not. Which is correct, is the IDI variable in logs or not?

4. An error occurred in the script of the model, and the log function was removed from model 2. Hence, the variable IDI was kept without the log function, and the correction was made : IDI witout log.

5. On Line 146, E ( ) = 0 ; i = 1 ……21 and t = 2008 …. 2019. There are 19 countries in the study, not 21 countries?

In fact, as duly noted, the sample size used for the assessment is 19 countries, and so i = 1…19.

6.The mostly insignificant effect of the main variable of interest, IDI, is a cause for concern. IDI has only a marginal significance (positive) for imports of financial services, negative for IT services, and insignificant effects on other types of services trade. One would expect a stronger effect than reported, especially for the ICT-based services (IT, Financial Services, and Telecommunications). What explains this lack of statistical significance, and does this reflect model inadequacy, or misspecification?

6.Despite the possibility that ICT might impact international trade since some services (financial service, IT services) can be delivered directly over the internet, there is little evidence that this is the case in MENA region. A related concern is that the trade behavior might be related to overall economic development (see for example George R.G. Clarke, 2007). In other words, these results are rather a reflection of structural fragilities of these economies given that international trade depends on a global policy environment and potential interdependencies between key macroeconomic variables. So, these results highlight the need for MENA economies to move towards an economic model that reconciles the development of ICT and efforts which include improvement in their trading environment, productivity, domestic market competition, price mechanisms, and managerial skills, which can promote their international trade

7. It is even more confounding that IDI has a negative effect on IT services. As the authors state in the paper, it would be expected that adoption of ICT would boost production and supply of ICT-based services. It follows then that a positive impact (not negative) is expected of IDI on exports of IT services. Why does ICT adoption reduce exports of IT services? Again, as in #6 above, what does this suggest about model adequacy? How do you reconcile your findings of negative effect with those of your cited references (Gnangnon, 2020 ; Liu & Narh, 2013 ; Clarke et Wallsten, 2006) that point to a positive impact?

7- Theoretically speaking, the contribution of ICTs to the growth of technology-based services is obvious (Wang and Choi, 2018 ; Clarke and Wallsten, 2006). However, our assessment indicates that ICTs adoption would be negatively correlated with IT services export. A possible explanation of this inconsistency of sign has is that an increase in ICT has access contributes to the increase in domestic demand for these services and, as such, exports and total trade decrease (Roy et al., 2022).

7- Actually, the bibliographical references were not appropriate. We have changed them.

8. There is no explanation of the IDI sub-index variables in the variation definitions section. Are these sub-indices constructed on the same scale as IDI?

8. Indeed, the text does not contain explanations about IDI sub-index. But as we have pointed out the IDI is a composite index made up of three sub-indices: ICT access, use and skills (by weighting the first two by 40 percent and the third by 20 percent). These three sub-indices are in turn composed of 11 indicators as follows:

- ICT access is measured by five indicators: mobile-cellular subscriptions per 100 inhabitants, fixed-telephone subscriptions per 100 inhabitants, international internet bandwidth per internet user, percentage of households with a computer and percentage of households with Internet access.

- ICT use is measured by three indicators: percentage of individuals using the internet, fixed-broadband internet subscriptions per 100 inhabitants and active mobile-broadband subscriptions per 100 inhabitants.

- ICT skills are approximated by three indicators: secondary gross enrolment ratio, adult literacy rate and tertiary gross enrolment ratio.

9. Is it necessary to separate out the interactions of the ICT sub-index variables in Tables 8, 9, and 10? Why not compress these interactions in one table? Especially since the sub-index variables are not strongly correlated, you could combine the interactions in the same models and present just one table.

9.The choice to merge tables 8, 9, and 10 does indeed arise in this study. However, at least two (non-technical) reasons have prompted our choice. First of all, this is intended to help make the tables read better, in addition to making the presentation clearer. Actually, we have simply assumed that separate tables are easier to read because they are titled differently. Secondly, since these three (03) tables provide distinct results related to imports, exports, and overall business, we opted to present them separately, regardless of the correlation problem.

Nevertheless, if the author of this report deems it necessary to merge the three tables into one, we will of course do so.

10.  What is the Competences variable in Table 9? This variable has not been explained in the paper.

10. That was an unintended typo in the text. So, we have to write “skills” instead of “Competencies”.