The Nuanced Effects of Internet Use on International Trade: An Empirical Analysis of U.S. Trade Data

Abstract

Although the trade-boosting effect of the Internet is well-documented, two critical questions remain unsatisfactorily answered. First, does the Internet benefit the trade in services greater than the trade in goods? Second, does the Internet eliminate or at least, weaken the negative effect of physical distance? Using the bilateral export data between the U.S. and 52 countries over the 2006- 2016 period, this study answers the two pressing questions by examining and comparing the effects of the Internet in trade in goods and services. According to the result of the two-step system GMM estimation results, the increase in the adoption of the Internet in the U.S. would boost its exports. Particularly, the trade-boosting effect of the Internet on the export of ICT-enabled services is larger than that on the export of goods and non-ICT services. However, no evidence is found to suggest that the trade-boosting effect of Internet use is achieved by making the physical distance a lesser barrier to trade.