DP9094 There goes gravity: how eBay reduces trade costs
We compare the impact of distance, a standard proxy for trade costs, on eBay and offline international trade flows. We consider the same set of 62 countries and the same basket of goods for both types of transactions. We find the effect of distance to be on average 65 percent smaller on the eBay online platform than offline. Using interaction variables, we show this difference is explained by a reduction of information and trust frictions enabled through online technology. We estimate the welfare gains from a reduction in offline frictions to the level prevailing online at 29 percent on average.