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There goes gravity : how eBay reduces trade costs

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

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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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
Date of revision:
Handle: RePEc:wbk:wbrwps:6253
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  1. Guillaume Daudin & Elizaveta Archanskaia, 2012. "Heterogeneity and distance puzzle," Sciences Po publications 2012-17, Sciences Po.
  2. Elisaveta Archanskaia & Guillaume Daudin, 2012. "Heterogeneity and the Distance Puzzle," Documents de Travail de l'OFCE 2012-17, Observatoire Francais des Conjonctures Economiques (OFCE).
  3. Babur De Los Santos & Ali Hortacsu & Matthijs R. Wildenbeest, 2012. "Testing Models of Consumer Search Using Data on Web Browsing and Purchasing Behavior," American Economic Review, American Economic Association, vol. 102(6), pages 2955-80, October.
  4. 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.
  5. Maris Goldmanis & Ali Hortacsu & Chad Syverson & Onsel Emre, 2008. "E-commerce and the Market Structure of Retail Industries," NBER Working Papers 14166, National Bureau of Economic Research, Inc.
  6. James E. Rauch, 1996. "Networks versus Markets in International Trade," NBER Working Papers 5617, National Bureau of Economic Research, Inc.
  7. Jonathan Eaton & Samuel Kortum, 2012. "Putting Ricardo to Work," Journal of Economic Perspectives, American Economic Association, vol. 26(2), pages 65-90, Spring.
  8. James Feyrer, 2009. "Distance, Trade, and Income - The 1967 to 1975 Closing of the Suez Canal as a Natural Experiment," NBER Working Papers 15557, National Bureau of Economic Research, Inc.
  9. 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.
  10. Anne-Célia Disdier & Keith Head, 2008. "The Puzzling Persistence of the Distance Effect on Bilateral Trade," The Review of Economics and Statistics, MIT Press, vol. 90(1), pages 37-48, February.
  11. Céline Carrere & Jaime Melo De & John Wilson, 2011. "The Distance Effect and the Regionalization of the Trade of Low-Income Countries," Working Papers halshs-00554326, HAL.
  12. repec:inr:wpaper:21709 is not listed on IDEAS
  13. repec:oup:qjecon:v:121:y:2006:i:2:p:541-585 is not listed on IDEAS
  14. Treb Allen, 2012. "Information Frictions in Trade," 2012 Meeting Papers 125, Society for Economic Dynamics.
  15. Berthelon, Matias & Freund, Caroline, 2004. "On the conservation of distance in international trade," Policy Research Working Paper Series 3293, The World Bank.
  16. Gregory Lewis, 2011. "Asymmetric Information, Adverse Selection and Online Disclosure: The Case of eBay Motors," American Economic Review, American Economic Association, vol. 101(4), pages 1535-46, June.
  17. Anne-Célia Disdier & Keith Head, 2008. "The puzzling persistence of the distance effect on bilateral trade," Post-Print hal-01172854, HAL.
  18. Arnaud Costinot & Andres Rodriguez-Clare & Costas Arkolakis, 2010. "New Trade Models, Same Old Gains?," 2010 Meeting Papers 433, Society for Economic Dynamics.
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