Innovation Capabilities and Digitally Deliverable Service Exports in China and India: An ARDL-ECM Analysis, 2000-2024
Abstract
This study examines how innovation capabilities shape Information and Communication Technology (ICT) service exports in China and India from 2000 to 2024. Amid the rapid expansion of digital trade, identifying the distinct growth trajectories of these two emerging economies is critical for policy insights. Using an Autoregressive Distributed Lag Error Correction Model (ARDL-ECM), we estimate long-run cointegration and short-run effects by modelling ICT export volume against resident patent applications while controlling for the real exchange rate, digital infrastructure, and human capital. Bounds testing confirms cointegration in both economies (F = 33.622 for China; F = 17.536 for India), with error correction terms of -0.839 and -0.366 (both p < 0.01), indicating rapid adjustment toward long-run equilibrium in China and a more gradual correction in India. Findings show that while China’s export growth is mainly supported by long-run accumulation of digital infrastructure (0.859, p < 0.01) and human capital (0.867, p < 0.01) (with a minor direct impact of patent-based innovation), India’s performance is dependent on innovation capability (0.488, p < 0.05) and exchange rate competitiveness (1.628, p < 0.01). Therefore, innovation and trade competitiveness are not synchronised across nations, and digital trade policy needs to be tailored to developmental levels.
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