Can Online Markets Make Trade More Inclusive?

Technology made available by online markets has signifcantly reduced the cost of entry into international markets for small and medium sized firms, who can now reach far away consumers and create global reputa- tion as a seller at very low costs. Empirical evidence using data from eBay sellers shows that a large share of online firms exports, even though they are on average much smaller than traditional offline firms. We show that in a world where income inequality is driven by an uneven distribution of capital rents, online markets help to reduce income inequality by providing smaller firms access to international markets.

There Goes Gravity: How eBay Reduces Trade Costs

The effect of distance on cross-border flows, a standard proxy for trade costs, is 60 percent smaller on the eBay online platform than offline. The relative decline is not explained by the correlation of distance with other traditional trade cost variables, such as common legal systems and language, colonial links, transport costs, and trade agreements, but rather by a reduction of information frictions online. This loss of gravity is particularly important for remote countries with larger information asymmetries associated, for example, with higher levels of corruption, suggesting an important role for technology to help overcome market and government failures while bringing the global economy towards frictionless trade

There Goes Gravity: How eBay Reduces Trade Costs

The effect of distance on cross-border flows, a standard proxy for trade costs, is 60 percent smaller on the eBay online platform than offline. The relative decline is not explained by the correlation of distance with other traditional trade cost variables, such as common legal systems and language, colonial links, transport costs, and trade agreements, but rather by a reduction of information frictions online. This loss of gravity is particularly important for remote countries with larger information asymmetries associated, for example, with higher levels of corruption, suggesting an important role for technology to help overcome market and government failures while bringing the global economy towards frictionless trade