The Impact of Information Technology on International Trade
Paul E. Jensen Vibhas Madan Linghui Tang* Dept. of Economics and International Business Lebow College of Business Drexel University Philadelphia, PA 19104 Tel: 215-895-1034/2124/2146 Fax: 215-895-6975 Email: jensenpe@drexel.edu madanv@drexel.edu lt27@drexel.edu JEL codes: F0, F1, O3, Abstract The dramatic innovations in information technology (IT) during the past decade have given rise to a great deal of interests regarding the role of this technological change as an important driving force behind globalization. This paper attempts to theoretically model and empirically test the relationship between the development of IT and the growth of bilateral international trade. The key issue for international voice and Internet communication is that the completion of a call or email requires joint provision of service from both ends. This and the fact that communication network costs are largely fixed costs, make communication costs differ in a fundamental way from the transportation cost in the traditional trade literature. Using a model of trade based on economies of scale and product differentiation, we will examine the importance of IT in international trade by considering network externality, technology improvement, and competition in the telecom sector. Using the data for 61 countries from 1981 to 1999, this paper will investigate the relationship between the value of bilateral trade and the growth of IT for both the importing and exporting countries. More specifically, we are interested in examining the relationship between the value of bilateral trade and two countries’ teledensity (main telephone lines per 100 inhabitants), number of Internet hosts, and telephone connection charges.
This project is funded by the 2001 summer research grant from Lebow College of Business at Drexel University.
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