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There Goes Gravity: How eBay Reduces Trade Costs

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  • Lendle, Andreas
  • Olarreaga, Marcelo
  • Schropp, Simon
  • Vézina, Pierre-Louis

Abstract

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.

Suggested Citation

  • Lendle, Andreas & Olarreaga, Marcelo & Schropp, Simon & Vézina, Pierre-Louis, 2012. "There Goes Gravity: How eBay Reduces Trade Costs," Conference papers 332244, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    • Handle: RePEc:ags:pugtwp:332244
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    More about this item

    Keywords

    International Relations/Trade; Research and Development/Tech Change/Emerging Technologies;

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce

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