Globalisation and servitisation of firms drive entry into cross-border data transfers

With the expansion of digital trade, firms are actively collecting and utilising data. This column uses a survey of Japanese firms in 2019 and 2021 to examine the dynamics of corporate activities related to cross-border data flows. The authors find a significant increase in cross-border data collection activities, led by high-productivity firms. In addition to productivity and firm size, globalisation and servitisation are especially useful for explaining firms’ entry into overseas data collection activities.

According to the OECD, all trade that includes digital ordering processes or delivery is ‘digital trade’ (OECD 2020). Although there are difficulties in measuring digital trade, López-González et al. (2023) estimate that it accounted for 24% of international trade in 2018, a significant increase from 19% in 1995. While digital trade in physical goods is ordered digitally and delivered physically, digital services can be ordered digitally and delivered digitally, and such trade increased markedly during the pandemic. Since digital trade involves the transfer of data between buyers and sellers for ordering and/or delivery, ensuring free cross-border data transfers is an important factor in promoting digital trade.

Despite the importance of free data transfers, barriers to digital trade are high and there are marked differences among countries. Some recent empirical evidence has already shown that regulatory measures restricting such cross-border data flows hurt digital trade. For example, Gupta et al. (2022) report a negative impact of restrictions on digital trade using cross-country data from 60 countries during the period from 2006 to 2017. López-González et al. (2023) show that digital connectivity and digital trade policies play a significant role in reducing trade costs and increasing trade across countries. While these previous studies show country-level impacts, a firm-level analysis is required regarding how many firms are affected. Our survey of Japanese firms in 2019 shows only a limited fraction of the total population of firms, but many of the firms engaged in cross-border transfers of data, are affected by such regulations (Tomiura et al. 2019). However, the identification of the firm attributes that are determinants of cross-border data transfers has remained limited due to data availability issues.

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