ABSTRACT

Service exports are crucial to Pakistan’s economy since they generate foreign exchange earnings while highlighting the country’s potential in industries such as information technology, finance, and tourism. Furthermore, they stimulate economic diversity and employment creation, increasing worldwide competitiveness. This study explores Pakistan’s digital economy and its impact on service exports. Using the ARDL model, the study uses annual data from 1993 to 2023 and attempts to build a comprehensive Digital Economy Development Index (DEDI) for Pakistan to assess its impact on service exports. The findings show that, over time, DEDI has had a significant and beneficial effect on service exports, underscoring the importance of digital transformation in increasing trade performance. Conversely, financial depth has a negative and significant long-term impact on service exports, demonstrating inefficiencies in the financial sector’s integration with service commerce. While domestic lending to the private sector has an insignificant impact on services exports in both the long term and the short term. The REER has a positive and significant effect in the short term. To maintain export growth, these findings highlight the necessity of a deliberate focus on supporting digital economy projects. Based on these results, this study recommends helping the digital economy flourish and increasing connectivity for companies engaged in service exports, investing in high-speed internet, data centers, and cloud computing infrastructure. Put in place extensive training programs for digital skills to provide workers with the technological know-how they need to prosper in a digital economy.