Over the years, eBay Inc. has created global trading opportunities for smart businesses of all sizes seeking to build international sales channels to customers beyond their home turf. During Q4 2011, this represented 20% of eBay's Gross Merchandise Volume. Our experience is that cross-border trade is a significant and growing commercial opportunity.
To put our experience to test, we commissioned economic research into international trade flows and exporting behaviour comparing offline channels and eBay. We wanted understand what role the internet and technology have played in the development of world trade to date. We also wanted to challenge the traditional political view of world trade being about the largest firms.
The research was carried out by Simon Schropp (Senior Economist, Sidley Austin), Marcelo Olarreaga (Professor, Geneva University), Andreas Lendle (PhD Candidate, Graduate Institute) and Pierre-Louis Vézina (Research Fellow, Oxford University).
The research was turned into a report showing how small business retailers using the eBay platform indeed export to several foreign markets. The research also formed the basis for an article by the economists discussing the “death of distance” happening on the Internet. The effect of distance as a proxy for trade costs is on average 65% smaller for trade on the eBay platform compared to offline. The article shows that this difference is explained by how online technology helps users overcome information and trust barriers. Importantly, if offline trade costs were reduced to the Internet level, that would increase real income by 29% in an average country. This suggests that the use by merchants of online technology and platforms makes trade more efficient and promises large welfare gains.
The article has been posted as a discussion paper on Centre for Economic Policy Research, something that was picked up by Bloomberg.