Information Frictions, Internet, and the Relationship between Distance and Trade
- American Economic Journal: Applied Economics (Forthcoming)
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.
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