GEP 12/08: The Internet and International Trade in Goods

Summary

We employ a gravity framework, taking into account recent advances in structural gravity modelling, to reconsider the relationship between Internet adoption and trade in goods.

Abstract

Previous studies by Freund & Weinhold (2004) and others have highlighted the trade promoting effect of the Internet. However, recent developments in structural gravity modelling emphasise the importance of controlling for multilateral resistance. We employ a gravity framework to assess the role of Internet adoption on trade within OECD countries over the period 1990-2010. We find that when multilateral resistance is controlled for, the Internet has a less clear cut effect on trade flows. Country pairs with relatively higher adoption rates trade more with one another than country pairs with lower adoption rates. However an increase in adoption within country pairs has little effect on trade. These results are robust when controlling for alternative communication technologies and comparison of dial-up and broadband connections.

Download the paper in PDF format

Authors

Jonathan Timmis

View all GEP discussion papers | View all School of Economics featured discussion papers