Nov 16, 2011

How the internet facilitates trade: Evidence from

"[Jack Ma]started Alibaba in 1999, to help small firms find customers and suppliers without going through costly middlemen. now claims to have 57m users, including some in nearly every country. It is sometimes likened to eBay, but is more like an online Yellow Pages… Machine-makers in Turkey or Britain use Alibaba to find cheap suppliers in China without having to go there.” 
The Economist, 29 December 2010
So, did have a significant impact on Chinese exports? As per the story above, should definitely reduce search and business-matching costs, which are an important impediment to trade (Rauch and Trindade 2002, Chaney 2011). 
To answer this question, I plugged the number of users by country in a gravity equation using 2010 data. The data on users comes from ninjastat and is available here. Unfortunately, it covers only about 20 countries. Still, as seen in the scatter below, the higher the number of alibaba users in a country, the higher the imports from China. The estimated coefficients suggest that a 10% increase in the number of users could increase imports from China by as much as 2.3%. What’s more, the effect remains significant when controlling for the number of ethnic-Chinese migrants in the partner country, a standard proxy for Chinese networks. 
Trade costs are going down even though contract-enforcement uncertainty remains a problem.
Note: The relationship plotted above is the added-variable plot obtained after running a gravity equation with Chinese exports on the left-hand side and GDP, GDPPC, distance, Chinese migrants and number of users on the right-hand side.


Anonymous said...

Assuming that the internet platform is only used for buying certain types of intermediate inputs, did you do a regression using different types of Chinese exports as the dependent variable, or did you use overall exports? It might be interesting to disaggregate, you might find that the relationship is stronger / weaker for different product categories....


Pierre-Louis said...

Good point Cammy! there is a lot more that can be done to understand trade costs using data... the best would be to directly have access to their data and see how much and which goods are traded between countries... but even without having access to their data some interesting stuff can be done such as looking at parts and components, as u suggest, or looking at trade in products which are top keywords per country,See here
what is needed is alos the number of users fro a larger number of countries... anyway this is a paper that needs to be written at some point!

Jonathan said...

And if importing more from China gives people reasons to sign up for alibaba?

Pierre-Louis said...

ah, the classic endogeneity question! well I guess in this case it's not really a problem. If u already import from China, you have suppliers already and you don't need alibaba... but an IV wd be great, maybe internet penetration (not perfect) or alibaba promotion campaigns?