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Has the internet increased trade? Evidence from industrial and developing countries

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Author Info
Clarke, George R.G.
Wallsten, Scott J.

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Abstract

If the Internet made it easier for firms to enter new markets by reducing communication and search costs, then it may also have made it easier to export goods and services. The authors find that higher Internet penetration in developing countries is correlated with greater exports to industrial countries, but not with trade between developing countries or with exports from industrial countries. Interpreting the correlations is difficult because causation may run from Internet use to exports or from trade openness to Internet use. To test whether Internet use affects export behavior, the authors endogenize Internet use by using countries'regulation of data services and Internet provision as instrumental variables. The results are robust to endogenizing Internet penetration, suggesting that access to the Internet does affect the export performance of firms in developing countries. In other words, Internet access appears to stimulate exports from poor countries to rich countries. Moreover, the analysis suggests that regulatory policies affecting telecommunications and Internet development indirectly affect trade, further emphasizing the importance of deregulating potentially competitive services in the telecommunications industry.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 3215.

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Date of creation: 01 Feb 2004
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Handle: RePEc:wbk:wbrwps:3215

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Related research
Keywords: Rural Communications; Economic Theory&Research; Payment Systems&Infrastructure; Knowledge Economy; Information Technology; Knowledge Economy; Education for the Knowledge Economy; Economic Theory&Research; Information Technology; Rural Communications;

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  3. Francesco Caselli & Wilbur John Coleman II, 2001. "Cross-Country Technology Diffusion: The Case of Computers," NBER Working Papers 8130, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  4. Douglas Staiger & James H. Stock, 1997. "Instrumental Variables Regression with Weak Instruments," Econometrica, Econometric Society, vol. 65(3), pages 557-586, May.
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  5. Caroline L. Freund & Diana Weinhold, 2000. "On the effect of the Internet on international trade," International Finance Discussion Papers 693, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  6. Dasgupta, Susmita & Lall, Somik & Wheeler, David, 2001. "Policy reform, economic growth, and the digital divide - an econometric analysis," Policy Research Working Paper Series 2567, The World Bank. [Downloadable!]
  7. Wallsten, Scott & Clarke, George & Haggarty, Luke & Kaneshiro, Rosario & Noll, Roger & Shirley, Mary & Lixin Colin Xu, 2004. "New tools for studying network industry reforms in developing countries : the telecommunications and electricity regulation database," Policy Research Working Paper Series 3286, The World Bank. [Downloadable!]
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  8. Daly, J.A. & Miller, R.R., 1998. "Corporations' Use of the Internet in Developing Countries," Papers 35, World Bank - International Finance Corporation.
  9. Wallsten, Scott, 2003. "Regulation and internet use in developing countries," Policy Research Working Paper Series 2979, The World Bank. [Downloadable!]
  10. Pritchett, Lant, 1996. "Measuring outward orientation in LDCs: Can it be done?," Journal of Development Economics, Elsevier, vol. 49(2), pages 307-335, May. [Downloadable!] (restricted)
  11. Kiiski, Sampsa & Pohjola, Matti, 2002. "Cross-country diffusion of the Internet," Information Economics and Policy, Elsevier, vol. 14(2), pages 297-310, June. [Downloadable!] (restricted)
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  12. Clarke, George R.G., 2002. "Does Internet Connectivity Affect Export Performance? Evidence from Transition Economies," Working Papers UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER). [Downloadable!]
  13. John McMillan & Christopher Woodruff, 2002. "The Central Role of Entrepreneurs in Transition Economies," Journal of Economic Perspectives, American Economic Association, vol. 16(3), pages 153-170, Summer. [Downloadable!] (restricted)
  14. Andrew K. Rose, 2004. "Do We Really Know That the WTO Increases Trade?," American Economic Review, American Economic Association, vol. 94(1), pages 98-114, March. [Downloadable!]
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