Impact of information and communication technology (ICT) on international trade in fruit and vegetables: A gravity model approach

Abstract

Globalization results when markets become more integrated because of reduced transaction and transport costs. These costs have fallen because of sustained advances in transport technology and, more dramatically, in digital information and communication technology (ICT). Although communication costs tend to be a minor component of total trading costs, reductions in these costs may strongly stimulate international trade. The empirical evidence in support of this effect is, however, scant and its strength may depend on the composition of ICT and the nature of the product being traded. We test the hypothesis of an ICT effect on trade in bananas, oranges, tomatoes, and vegetables and fruit in general. We employ a gravity model of international trade between major exporting and importing countries for the period 1995 to 2009. The model explains the value of trade in terms of export and import countries’ levels of internet and mobile phone penetration, and of a broad range of factors that might also affect bilateral trade. We test whether a fixed effects model or random effects model best suits the data; results suggest a fixed effects model is appropriate. Model results suggest that mobile phone penetration significantly stimulates trade in vegetables and fruit and oranges by exporting countries. , but its impact is less than that of fixed telephone usage which has an unexpected negative influence on banana imports. Internet usage has only a positive effect on trade in imports of tomatoes. Internet usage in exporting countries for fruit and vegetables are negatively associated.

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