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Does online trade live up to the promise of a borderless world? Evidence from the EU Digital Single Market

An important EU Digital Single Market policy objective is to achieve an open and integrated market for online e-commerce in the EU, to make it easy for consumers to go outside their domestic market and shop online in other EU Member States. This study applies a standard gravity model of international trade to Google e-commerce data to estimate the prevalence of home bias in online shopping in the EU. It compares how much EU Member States trade domestically and with other Member States, and how much the EU trades with itself and with the rest of the world. The research confirms the findings of the (offline) international trade literature, according to which there is strong home bias. There is no unambiguous evidence about the strengths or weaknesses of the EU Digital Single Market. Strong intra-EU home bias suggests that online consumers have a tendency to stay in their home country market. Equally strong extra-EU home bias suggests that online consumers who do decide to shop abroad have a tendency to stay in the EU however, rather than going to a non-EU country. There are indications that online home bias is lower in a comparable cross-border trade setting in North America. Data and methodological limitations do not allow a more detailed analysis.

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Paper provided by Institute of Prospective Technological Studies, Joint Research Centre in its series JRC-IPTS Working Papers on Digital Economy with number 2013-08.

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Length: 22 pages
Date of creation: Sep 2013
Date of revision:
Publication status: Published
Handle: RePEc:ipt:decwpa:2013-08
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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. Ali Hortaçsu & F. Asís Martínez-Jerez & Jason Douglas, 2009. "The Geography of Trade in Online Transactions: Evidence from eBay and MercadoLibre," American Economic Journal: Microeconomics, American Economic Association, vol. 1(1), pages 53-74, February.
  3. James E. Anderson & Eric van Wincoop, 2003. "Gravity with Gravitas: A Solution to the Border Puzzle," American Economic Review, American Economic Association, vol. 93(1), pages 170-192, March.
  4. Lendle, Andreas & Olarreaga, Marcelo & Schropp, Simon & Vézina, Pierre-Louis, 2012. "There goes gravity: how eBay reduces trade costs," CEPR Discussion Papers 9094, C.E.P.R. Discussion Papers.
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