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Information Frictions, Internet, and the Relationship between Distance and Trade

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  • Anders Akerman
  • Edwin Leuven
  • Magne Mogstad

Abstract

We examine how the adoption of information communication technology affects bilateral trade. The context is a public program in Norway that rolled out broadband access points leading to plausibly exogenous variation in the availability and adoption of broadband by firms. We find that broadband makes trade patterns more sensitive to distance and economic size. These results are consistent with a model of trade with variable elasticity of demand. The model predicts that adoption of a technology that lowers information frictions enlarges the choice set of exporters and importers. This makes demand more elastic with respect to trade costs and thus distance.

Suggested Citation

  • Anders Akerman & Edwin Leuven & Magne Mogstad, 2022. "Information Frictions, Internet, and the Relationship between Distance and Trade," American Economic Journal: Applied Economics, American Economic Association, vol. 14(1), pages 133-163, January.
  • Handle: RePEc:aea:aejapp:v:14:y:2022:i:1:p:133-63
    DOI: 10.1257/app.20190589
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    More about this item

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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