NCPA - National Center for Policy Analysis

Credit Web With Major Trade Gains

March 23, 2001

The Internet has fostered trade among nations -- with particular benefits to small suppliers and customers in the U.S. and developing countries, by helping them find each other online. In a new study, Caroline Freund of the Federal Reserve Board and Diana Weinhold of the London School of Economics try to determine just how big a difference the Web has made to trade.

They looked at trade flows among 56 countries from 1995 to 1999.

  • For the first two years, they found no impact from the Net.
  • But starting in 1997, as Web usage accelerated, they discovered that a 10 percent increase in the number of a nation's Web sites would have led to a 1 percent rise in its trade flows in 1998 and 1999.
  • The impact was strongest for poorer countries -- suggesting that nations with fewer initial trade links can reap larger relative gains from the Web, assuming they have made basic infrastructure and technology investments.
  • While the researchers looked only at the Net's effect on trade in goods, they speculate that its effect on services should be even greater.

That's because the Net not only makes it possible for potential suppliers and customers in different countries to contact each other at little cost -- but also is the medium through which many services can actually be traded.

Source: Gene Koretz, "Economic Trends: The Net Hauls in a Big Catch," Business Week, March 12, 2001; based on Caroline Freund and Diana Weinhold, "On The Effect of the Internet on International Trade," International Finance Discussion Papers Number 693, December 2000, Board of Governors of the Federal Reserve System.

For study


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