Internet Technology and the Extensive Margin of Trade: Evidence from eBay in Emerging Economies

• Published date: 01 May 2015
• Author: Andreas Lendle,Pierre‐Louis Vézina
• DOI: http://doi.org/10.1111/rode.12148
• Date: 01 May 2015

Internet Technology and the Extensive Margin of

Trade: Evidence from eBay in Emerging Economies

Andreas Lendle and Pierre-Louis Vézina*

Abstract

Online platforms such as eBay offer technologies that make it easier for firms to export. This paper dissects

a new firm-level dataset that covers sales made through eBay by sellers based in 21 emerging economies to

provide a new lens through which to look at the effect of trade costs on the extensive margin of trade. Com-

paring eBay sellers with “offline” firm-level data from the World Bank’s Exporter Dynamics Database

allows us to test whether the observed trade patterns on eBay fit with the trade-liberalization predictions of

heterogeneous-firm models. We find that eBay firms export to more destinations, suggesting low

destination-specific fixed costs on eBay. We then show that the distribution of export destinations across

eBay sellers is well approximated by a balls-and-bins model of frictionless trade, suggesting eBay indeed

lowers fixed export costs. Finally, we compare the gravity of eBay with that of offline trade and find geo-

graphic distance, languages, and trade agreements to matter less for online trade.

1. Introduction

The 2000s has seen a wave of papers studying the heterogeneity of firms in interna-

tional trade. These have been mostly motivated by Melitz (2003), who combined firm

heterogeneity in productivity with fixed export costs in trade models to show that

extensive-margin effects, i.e. the growth in the number of exporters, destinations, and

varieties, were important following trade liberalization.

Three accompanying empirical regularities (see Bernard et al., 2007), that often

attributed to high fixed export costs, have been (1) the scarcity of exporters among

firms (only the most productive export), (2) the low number of markets reached by

those firms that do export, and (3) the concentration of exports among a small

number of very large exporters—export “superstars” (Freund and Pierola, 2012) or

“the happy few” (Mayer and Ottaviano, 2007). To put it differently, these empirical

papers have suggested that exporting is rare and that this is most likely owing to high

export costs.

Yet recent empirical studies do not agree on the magnitude of the extensive-margin

effects of trade liberalization. For example, Kehoe and Ruhl (2013) suggest that

extensive-margin growth is an important part of export growth following trade liber-

alization. They find that over the period 1995–2005, a 10% increase in trade between

two countries was associated with a 36% increase in the extensive margin, defined as

newly traded goods. They add that the extensive margin accounted for 9.9% of the

growth in trade between the USA, Mexico and Canada following the North American

Free Trade Agreement in 1994. Similarly, Dutt et al. (2013) show that the impact of

the World Trade Organization (WTO) on trade is concentrated almost exclusively on

* Vézina: Department of Economics, University of Birmingham, B15 2TT, United Kingdom, E-mail:

p.vezina@bham.ac.uk. Lendle: Office of the Chief Trade Adviser for Forum Island Countries, Independ-

ence Park, Port Vila, Vanuatu. We thank participants at DEGIT 2013 in Lima for their comments as well

as eBay and the World Bank’s “Exporter Dynamics Database”team for providing us with data.

Review of Development Economics, 19(2), 375–386, 2015

DOI:10.1111/rode.12148

© 2015 John Wiley & Sons Ltd