Information Frictions, Internet and the Relationship between Distance and Trade

Anders Akerman, Edwin Leuven and Magne Mogstad

American Economic Journal. Applied Economics 

Front page of journal American economic journal. Applied economics 

Photo: American Economic Association

Published in:

American Economic Journal. Applied Economics

Abstract:

We examine how the adoption of information communication technology affects
bilateral trade. The context is a public program in Norway which rolled out broadband
access points leading to plausibly exogenous variation in the availability and adoption
of broadband by firms. We find that broadband makes trade patterns more sensitive to
distance and economic size. These results are consistent with a model of trade with
variable elasticity of demand. The model predicts that adoption of a technology that
lowers information frictions enlarges the choice set of exporters and importers. This
makes demand more elastic with respect to trade costs and thus distance.

Published May 28, 2021 10:47 AM - Last modified May 28, 2021 10:47 AM