How Friendly Diplomatic Relations Promote Bilateral Trade in Digital Services: Empirical Evidence from China's Partnership Diplomacy

How to use diplomacy to promote bilateral digital services trade in the context of politicization of trade issues is a key issue for developing countries to seize digital opportunities to develop their productivity. This paper empirically tests the role of partner diplomacy in promoting the development of inter-country trade in services. The study finds that: (1) the scale of bilateral services trade between China and the host country increases by approximately 13% for each partner level increase in diplomatic relations, and this boosting effect remains robust after considering model changes, changes in explanatory variables and endogeneity issues. (2) The mechanism test finds that the promotion effect of partner diplomacy on bilateral services trade is essentially a trade cost-cutting effect, which is achieved in four forms: trade negotiations, high-level visits, treaty signing and platform building.