Tags: Online | Trade | Global | Growth

Online Trade Buoys Global Growth by Paring Distance

Friday, 24 August 2012 09:27 AM

Trading more online could help boost global economic growth, according to a paper published this week by the Centre for Economic Policy Research.

Four economists used data from San Jose, California-based retailer EBay Inc. to “breathe new life into the ‘death of distance’ hypothesis,” which maintains advances in transportation and communication should make international trade cheaper and easier.

Their study of transactions featuring 40 product categories and 62 countries from 2004 to 2007 shows the impact of distance on trade to be 65 percent smaller when business is conducted online.

Reducing trade frictions to the Internet level by, for example, paring the need for multiple telephone calls, improving access to information or reducing the need to attend trade fairs would increase real income by 29 percent in an average country, said the University of Oxford’s Pierre-Louis Vezina and Switzerland-based economists Andreas Lendle, Marcelo Olarreaga and Simon Schropp.

Remote countries with high levels of income inequality and inefficient ports would benefit the most as online business would help overcome market and governance weaknesses, they said.

“In a world where search costs are greatly reduced, the role of distance in explaining trade flows is smaller,” the economists wrote.

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Friday, 24 August 2012 09:27 AM
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