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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
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Handle: RePEc:wbk:wbrwps:6253
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  1. Costas Arkolakis & Arnaud Costinot & Andres Rodriguez-Clare, 2012. "New Trade Models, Same Old Gains?," American Economic Review, American Economic Association, vol. 102(1), pages 94-130, February.
  2. David Weinstein & Christian Broda, 2004. "Globalization and the Gains from Variety," Econometric Society 2004 North American Summer Meetings 508, Econometric Society.
  3. Elizaveta Archanskaia & Guillaume Daudin, 2012. "Heterogeneity and the Distance Puzzle," Working Papers DT/2012/09, DIAL (Développement, Institutions et Mondialisation).
  4. 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.
  5. Jonathan Eaton & Samuel Kortum, 2012. "Putting Ricardo to Work," Journal of Economic Perspectives, American Economic Association, vol. 26(2), pages 65-90, Spring.
  6. 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.
  7. 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.
  8. Treb Allen, 2012. "Information Frictions in Trade," 2012 Meeting Papers 125, Society for Economic Dynamics.
  9. Guillaume Daudin & Elizaveta Archanskaia, 2012. "Heterogeneity and distance puzzle," Sciences Po publications 2012-17, Sciences Po.
  10. 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.
  11. Rauch, James E., 1999. "Networks versus markets in international trade," Journal of International Economics, Elsevier, vol. 48(1), pages 7-35, June.
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