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There goes gravity : how eBay reduces trade costs

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  • Lendle, Andreas
  • Olarreaga, Marcelo
  • Schropp, Simon
  • Vezina, Pierre-Louis

Abstract

This paper compares the impact of distance, a standard proxy for trade costs, on eBay and offline international trade flows. It considers the same set of 62 countries and the same basket of goods for both types of transactions, and finds the effect of distance to be on average 65 percent smaller on the eBay online platform than offline. Using interaction variables, this difference is explained by a reduction of information and trust frictions enabled through online technology. The analysis estimates the welfare gains from a reduction in offline frictions to the level prevailing online at 29 percent on average. Remote countries that are little known, with weak institutions, high levels of income inequality, inefficient ports, and little internet penetration benefit the most, as online markets help overcome government and offline market failures.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 6253.

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Date of creation: 01 Oct 2012
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Handle: RePEc:wbk:wbrwps:6253

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Keywords: Economic Theory&Research; Common Carriers Industry; Free Trade; E-Business; Trade Law;

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References

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  1. Blum, Bernardo S. & Goldfarb, Avi, 2006. "Does the internet defy the law of gravity?," Journal of International Economics, Elsevier, vol. 70(2), pages 384-405, December.
  2. James E. Rauch, 1996. "Networks versus Markets in International Trade," NBER Working Papers 5617, National Bureau of Economic Research, Inc.
  3. Costas Arkolakis & Arnaud Costinot & Andrés Rodríguez-Clare, 2009. "New Trade Models, Same Old Gains?," NBER Working Papers 15628, National Bureau of Economic Research, Inc.
  4. Elizaveta Archanskaia & Guillaume Daudin, 2012. "Heterogeneity and the Distance Puzzle," FIW Working Paper series 095, FIW.
  5. David E. Weinstein & Christian Broda, 2004. "Globalization And The Gains From Variety," Econometric Society 2004 Latin American Meetings 327, Econometric Society.
  6. Jonathan Eaton & Samuel Kortum, 2012. "Putting Ricardo to Work," Journal of Economic Perspectives, American Economic Association, vol. 26(2), pages 65-90, Spring.
  7. Onsel Emre & Ali Hortacsu & Chad Syverson, 2005. "E-commerce and the Market Structure of Retail Industries," Working Papers 05-24, NET Institute, revised Oct 2005.
  8. James Feyrer, 2011. "Distance, Trade, and Income -- The 1967 to 1975 Closing of the Suez Canal as a Natural Experiment," 2011 Meeting Papers 1438, Society for Economic Dynamics.
  9. Berthelon, Matias & Freund, Caroline, 2008. "On the conservation of distance in international trade," Journal of International Economics, Elsevier, vol. 75(2), pages 310-320, July.
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Trade and Development at ETSG
    by Dany Jaimovich - Bakary Baludin in Development Therapy on 2012-09-17 16:57:00
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Cited by:
  1. Keith Head & Thierry Mayer, 2013. "What Separates Us? Sources of Resistance to Globalization," Working Papers 2013-26, CEPII research center.
  2. Bo Cowgill & Cosmina Dorobantu & Bertin Martens, 2013. "Does online trade live up to the promise of a borderless world? Evidence from the EU Digital Single Market," JRC-IPTS Working Papers on Digital Economy 2013-08, Institute of Prospective Technological Studies, Joint Research Centre.
  3. Jeon, Doh-Shin & Jullien, Bruno & Klimenko, Mikhail, 2012. "Language, Internet and Platform Competition: the case of Search Engine," IDEI Working Papers 742, Institut d'Économie Industrielle (IDEI), Toulouse.
  4. Lendle, Andreas & Olarrega, Marcelo & Schropp, Simon & Vézina, Pierre-Louis, 2013. "eBay’s anatomy," Economics Letters, Elsevier, vol. 121(1), pages 115-120.

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