On the Effect of the Internet on International Trade

Economics

Speaker:Diana Weinhold, London School of Economics
Date: Friday 16 February 2001
Time: 16:15
Location: Room 106 Streatam Court

Further details

(with Caroline L. Freund)

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, from 1997 to 1999, we find an increasing and significant impact. 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 as strong (or stronger) for poor countries as 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.