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Saturday, September 21 • 12:15pm - 12:50pm
The Nuanced Effects of Internet Use on International Trade: An Empirical Analysis of U.S. Trade Data

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Although the trade-boosting effect of the Internet is well-documented, two critical
questions remain unsatisfactorily answered. First, does the Internet benefit the trade in services greater than the trade in goods? Second, does the Internet eliminate or at least, weaken the negative effect of physical distance? Using the bilateral export data between the U.S. and 52 countries over the 2006- 2016 period, this study answers the two pressing questions by examining and comparing the effects of the Internet in trade in goods and services. According to the result of the two-step system GMM estimation results, the increase in the adoption of the Internet in the U.S. would boost its exports. Particularly, the trade-boosting effect of the Internet on the export of ICT-enabled services is four times larger than that on the export of goods and non-ICT services. However, only a limited counter-conquering effect of the Internet is found. An increase in Internet adoption in the U.S. could further weaken the already-small distance effect in the trade in services only if the partner county is moderately far, i.e., in the middle tercile of distance from the U.S.
In spite of frequent fluctuations, international trade, in general, has been growing rapidly over the last two decades (see, for example, the World Bank Open Data). One of the critical factors contributing to the expansion of global trade is the rise of new communication technologies, pioneered by the Internet (Borcuch, Piłat-Borcuch & Świerczyńska-Kaczor, 2012). Although the trade-promoting effect of the Internet has been well documented in international trade literature (Freund & Weinhold, 2002, 2004; Lin, 2015; Lechman & Marszk, 2015), some critical questions are yet to be answered.
Traditionally, international trade studies tend to focus more on the trade in goods either because not enough data are available for the trade in services or services remained a small part in international trade (Gervais, 2013). Recently, more attention has been given to the trade in services due to its rapidly increasing share of global trade (Loungani, Mishara, Papageorgiou & Wang, 2017). Unlike the trade in goods where transportation costs, although in decline, are still nonnegligible (Hummels, 2007), the trade in services could benefit immensely from the wide use of the Internet as it could significantly lower the cost of cross-border communication, a major barrier to service trade in which interpersonal interaction plays an important part (Huang, 2007; Christen & Francois, 2010). Moreover, many services that used to be considered as non-tradable, such as business consulting and education, can now be easily delivered via the Internet (Nath & Liu, 2017). Therefore, it is often assumed that the trade-boosting effect of the Internet would be greater in the trade in services than in the trade in goods (Freund & Weinhold, 2004; Gnangnon & Iyer, 2018). However, to the best knowledge of the author, there is no empirical research which rigorously compares the nuanced effects of the Internet in different types of trade. Utilizing the bilateral trade data between the U.S. and 52 partner
countries over the 2006 -2016 period, this study seeks to fill this gap by comparing the effects of the Internet in trade in goods and services.
In the Condition of Postmodernity, Harvey (1990) proposed a widely accepted concept: with the help of advanced communication technologies, information can now travel across a great distance in much less or even in no time. Therefore, the distance has been “compressed” (p. 5) by speed. Has the distance-compression effect of the Internet been realized in international trade? The existing literature seems to suggest it is not the case. Even after the Internet has been widely used, geographic distance remains a critical barrier to trade as shown in many studies (Disdier & Head, 2008; Lin, 2015). However, even if the distance still is an obstacle to trade, is it possible that the Internet hasweakened the effect of geographic distance? Building on the analysis by Freund and Weinhold (2002) which uses trade data before the advent of the fast-speed Internet, this study also provides an updated answer to this important question.
The structure of the paper is as follows. In the next section, prior studies on the effect of the Internet on international trade and on the relationship between the Internet and the distance effect in international trade are reviewed. Then, the third section introduces the data and analytical strategies used in the study, followed by the results of the analyses. The last section provides a summary of the main findings. The implications and limitation of the study is also discussed in the section.


Jeff Prince

Indiana University


Yang Bai

The Pennsylvania State University

Saturday September 21, 2019 12:15pm - 12:50pm PDT
Y116 WCL, 4300 Nebraska Ave, Washington, DC