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On the effect of the Internet on international trade

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  • Caroline L. Freund
  • Diana Weinhold

Abstract

The Internet stimulates trade. Using a gravity equation of trade among 56 countries, we find no evidence of an effect of the Internet on total trade flows in 1995 and only weak evidence of an effect in 1996. However, we find an increasing and significant impact from 1997 to 1999. Specifically, our results imply that a 10 percent increase in the relative number of web hosts in one country would have led to about 1 percent greater trade in 1998 and 1999. Surprisingly, we find that the effect of the Internet on trade has been stronger for poor countries than for rich countries, and that there is little evidence that the Internet has reduced the impact of distance on trade. The evidence is consistent with a model in which the Internet creates a global exchange for goods, thereby reducing market-specific sunk costs of exporting.

Suggested Citation

  • 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.).
  • Handle: RePEc:fip:fedgif:693
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    References listed on IDEAS

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    Cited by:

    1. Buch, Claudia M. & Kleinert, Jorn & Toubal, Farid, 2004. "The distance puzzle: on the interpretation of the distance coefficient in gravity equations," Economics Letters, Elsevier, vol. 83(3), pages 293-298, June.
    2. John S. Wilson & Catherine L. Mann & Tsunehiro Otsuki, 2005. "Assessing The Potential Benefit Of Trade Facilitation: A Global Perspective," World Scientific Book Chapters,in: Quantitative Methods For Assessing The Effects Of Non-Tariff Measures And Trade Facilitation, chapter 8, pages 121-160 World Scientific Publishing Co. Pte. Ltd..
    3. Gomez-Herrera, Estrella & Martens, Bertin & Turlea, Geomina, 2014. "The drivers and impediments for cross-border e-commerce in the EU," Information Economics and Policy, Elsevier, vol. 28(C), pages 83-96.
    4. Mohammad Amin & Jamal Haidar, 2014. "Trade facilitation and country size," Empirical Economics, Springer, vol. 47(4), pages 1441-1466, December.
    5. Bagai, Shweta & Wilson, John S., 2006. "The data chase : what's out there on trade costs and nontariff barriers ?," Policy Research Working Paper Series 3899, The World Bank.
    6. Choi, Changkyu, 2003. "Does the Internet stimulate inward foreign direct investment?," Journal of Policy Modeling, Elsevier, vol. 25(4), pages 319-326, June.
    7. Huang, Ting Ting & Sun, Bruce Qiang, 2016. "The impact of the Internet on global industry: New evidence of Internet measurement," Research in International Business and Finance, Elsevier, vol. 37(C), pages 93-112.
    8. Elgin, Ceyhun, 2013. "Internet usage and the shadow economy: Evidence from panel data," Economic Systems, Elsevier, vol. 37(1), pages 111-121.
    9. Nora Dihel & Felix Eschenbach & Ben Shepherd, 2006. "South-South Services Trade," OECD Trade Policy Papers 39, OECD Publishing.
    10. Jeevika Weerahewa, 2009. "Impact of Trade Facilitation Measures and Regional Trade Agreements on Food and Agricultural Tarde in South Asia," Working Papers 6909, Asia-Pacific Research and Training Network on Trade (ARTNeT), an initiative of UNESCAP and IDRC, Canada..
    11. Paul J.J. Welfens, 2004. "Auf dem Weg in eine europäische Informations- und Wissensgesellschaft: Probleme, Weichenstellungen, Politikoptionen," EIIW Discussion paper disbei117, Universitätsbibliothek Wuppertal, University Library.
    12. Welfens Paul J. J. & Jungmittag Andre, 2002. "Europäische Telekomliberalisierung und Außenhandel. Theorie, Gravitationsansatz und Implikationen / European Telecom Liberalization and Foreign Trade. Theory, Gravity Equation Analysis and Policy Impl," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 222(1), pages 98-111, February.
    13. Azim M Sadikov, 2007. "Border and Behind-the-Border Trade Barriers and Country Exports," IMF Working Papers 07/292, International Monetary Fund.
    14. Caroline Freund & Diana Weinhold, 2002. "The Internet and International Trade in Services," American Economic Review, American Economic Association, vol. 92(2), pages 236-240, May.
    15. Clarke, George R.G. & Wallsten, Scott J., 2004. "Has the internet increased trade? Evidence from industrial and developing countries," Policy Research Working Paper Series 3215, The World Bank.
    16. Simeon Djankov & Caroline Freund & Cong S. Pham, 2010. "Trading on Time," The Review of Economics and Statistics, MIT Press, vol. 92(1), pages 166-173, February.
    17. Wilson,John S. & Mann, Catherine L. & Otsuki, Tsunehiro, 2003. "Trade facilitation and economic development : measuring the impact," Policy Research Working Paper Series 2988, The World Bank.
    18. Fink, Carsten & Mattoo, Aaditya & Neagu, Ileana Cristina, 2005. "Assessing the impact of communication costs on international trade," Journal of International Economics, Elsevier, vol. 67(2), pages 428-445, December.
    19. Soloaga, Isidro & Wilson, John S. & Mejia, Alejandro, 2006. "Moving forward faster : trade facilitation reform and Mexican competitiveness," Policy Research Working Paper Series 3953, The World Bank.
    20. Meredith A. Crowley & Xi Luo, 2011. "Understanding the great trade collapse of 2008–09 and the subsequent trade recovery," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q II, pages 44-68.
    21. Wilson, John S. & Otsuki, Tsunehiro, 2007. "Regional integration in South Asia : what role for trade facilitation ?," Policy Research Working Paper Series 4423, The World Bank.
    22. Andre Jungmittag & Paul Welfens, 2009. "Liberalization of EU telecommunications and trade: theory, gravity equation analysis and policy implications," International Economics and Economic Policy, Springer, vol. 6(1), pages 23-39, June.

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    Keywords

    International trade ; Internet;

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