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Dr. Ruiqi (Rachel) Sun
Postdoctoral Fellow
Rotman Management School, University of Toronto

Artificial Intelligence (AI) is a powerful technology that is expected to have a significant impact on international trade flows, yet little is currently known empirically about this. In this paper, we focus on the impact of AI on digital services trade embedded in mobile apps, which are widely used by over half of the world’s population. Using data on mobile app usage from 2014-2020 and information on patents held by app publishers, we develop a novel machine learning approach to predict the use of AI patents in each app and construct a variety-level measure of AI deployment. To instrument AI deployment, we utilize cost-shifters from the theory of comparative advantage, where firms in countries with abundant AI resources are expected to have a comparative advantage in producing AI-intensive apps. Our results show that AI deployment has a significant impact on international trade in mobile app services. Specifically, we find that AI deployment increases app monthly active users by a factor of six and leads to increased entry into new markets and decreased exit from existing markets. Moreover, our analysis shows that AI deployment leads to welfare gains for consumers through the availability of better and more diverse products. Overall, our findings provide new insights into the role of AI in shaping international trade in mobile app services and suggest that AI will likely continue to have a significant impact on global trade in the future.