The Role of Artificial Intelligence In Accelerating International Trade: Evidence From Panel Data Analysis

Abstract

Technology has historically played a role in shaping international trade, but the current explosion in Artificial Intelligence has the potential to radically alter global commerce in the years ahead. In this research, we hypothesized that the AI capability of a nation has a major impact on international trade. This study discusses different ways in which technological advancements in the AI domain are improving global trade. We tested the hypothesis using the WDI, Government AI Readiness Index panel dataset of 150 countries for the years 2018-2021. Fixed effect, and Random effect panel models were applied.   The results show that the AI capability of a nation has a major positive influence on trade. The findings also show that GDP and exchange rate have significant positive impacts, and inflation and trade restrictions have negative and significant impacts on trade. The findings of this study recommend strengthening the nation’s AI capacity to increase its trade volume. AI will stimulate better economic development and open up new avenues for international trade to the extent that it fosters productivity growth. However, governments will need time to adapt and employ new AI technology, since doing so requires significant financial investments, access to skilled people, and a shift in how international companies are operated.