Has the Internet Increased Trade? Evidence from Industrial and Developing Countries

Abstract

Abstract: If the Internet made it easier for firms to enter new markets by reducing communication and search costs then it may also have made it easier to export goods and services. We find that higher Internet penetration in developing countries is correlated with greater exports to developed countries, but not with trade between developing countries or with exports from developed countries. Interpreting the correlations is difficult because causation may run from Internet use to exports or from trade openness to Internet use. To test whether Internet use affects export behavior, we endogenize Internet use by using countries ’ regulation of data services and Internet provision as instrumental variables. The results are robust to endogenizing Internet penetration, suggesting that access to the Internet does affect export performance of firms in developing countries. In other words, Internet access appears to stimulate exports from poor countries to rich countries. Moreover, the analysis suggests that regulatory policies affecting telecommunications and Internet development indirectly affect trade, further emphasizing the importance of deregulating potentially competitive services in the telecommunications industry.

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