The Impact of AI and Cross-Border Data Regulation on International Trade in Digital Services
About the Series:
The INT Trade Policy Research Seminar Series aims to create a forum to discuss trade policy issues relevant for Latin American and Caribbean countries based on rigorous empirical research that informs the design of policies and help understand their determinants and economic impacts. Presenters are primarily guest researchers. Participation is open to all interested parties.
If you have questions on this seminar series, please contact its technical coordinator, Christian Volpe Martincus ([email protected]) or the event coordinator, Angela Dorantes (angelad@iadb.org)
For more details about the series, visit: https://www.iadb.org/en/who-we-are/topics/trade/trade-initiatives/trade-policy-research-seminar-series
About this Seminar:
The Impact of AI and Cross-Border Data Regulation on International Trade in Digital Services: A Large Language Model
Abstract:
The rise of artificial intelligence (AI) and of cross-border restrictions on data flows has created a host of new questions and related policy dilemmas. This paper addresses two questions: How is digital service trade shaped by (1) AI algorithms and (2) by the interplay between AI algorithms and cross-border restrictions on data flows?
Answers lie in the palm of your hand: From London to Lagos, mobile app users trigger international transactions when they open AI-powered foreign apps. We have 2015-2020 usage data for the most popular 35,575 mobile apps and, to quantify the AI deployed in each of these apps, we use a large language model (LLM) to link each app to each of the app developer’s AI patents. (This linkage of specific products to specific patents is a methodological innovation.)
Armed with data on app usage by country, with AI deployed in each app, and with an instrument for AI (a Heckscher-Ohlin cost-shifter), we answer our two questions.
(1) On average, AI causally raises an app’s number of foreign users by 2.67 log points or by more than 10-fold.
(2) The impact of AI on foreign users is halved if the foreign users are in a country with strong restrictions on cross-border data flows. These countries are usually autocracies.
We also provide a new way of measuring AI knowledge spillovers across firms and find large spillovers. Finally, our work suggests numerous ways in which LLMs such as ChatGPT can be used in other applications.