E-commerce impact on trade openness: The case of emerging and developed European countries

Today e-commerce plays an indispensable role in many economic activities by providing remedies to some economic problems. E-commerce not only provides an efficient solution to the scarcity of resources among countries but also ensures an effective allocation of resources. It serves as a powerhouse of world economic growth and effectively sustains cross-border trade, thereby stimulating economic efficiency. Yet today, its full potential is far beyond reach. This research employs quarterly data on e-commerce, trade openness, tariffs, exchange rate, foreign direct investment, industry size, and gross domestic product in 14 European countries. Countries are grouped into developed European countries and emerging European countries for the period 2009Q1-2020Q4. The study applies panel data analysis through a fixed effect model and FGLS estimation technique. In both developed and emerging European countries, results show that e-commerce has a positive and statistically significant impact on trade openness. However, a higher impact of e-commerce on trade openness among developed European countries is recorded. This is evident from the higher coefficient value and a strongly statistically significant P-value. This may be a result of highly developed infrastructure such as proper road networks, address systems, and high-performing institutions together with more relaxed measures and laws governing the operation of e-commerce activities in these developed European countries as compared to stringent measures and laws governing e-commerce activities among emerging European countries. In both developed and emerging European economies, results show a negative correlation between trade openness and tariffs. Among developed European countries, GDP, exchange rate, industry size, and foreign direct investment recorded a positive effect on trade openness. Whereas in the case of emerging European economies, all variables show a positive impact on trade openness with the exception of foreign trade investment.