Does Distance Matter? The Influence of ICT on Bilateral Trade Flows

Information and communication technology (ICT) has altered previous notions of distance and led to discussions in the popular press of the “death of distance.” Geographic distance typically results in diminished trade flows between countries, but does ICT play a role in overcoming geographic distance? This article examines the key hypothesis that ICT reduces the cost associated with the conduct of international trade between distant countries. In this research, we examine bilateral trade flows and geographic distance data for 175 different countries. We use a gravitational model to determine if physical and cultural distance matters in how ICT affects bilateral trade flows. Our methodology involves the use of 14,511 country pairs, for which we can represent and evaluate the effects of our distance measures. We find that greater bilateral trade flows occur between countries with higher Internet use, suggesting that the presence of common digital infrastructure between countries will enhance their trade. We also found that ICT use has a more positive impact on bilateral trade flows between large economies than it does for smaller economies. Finally, ICT use by more distant trading partners appears to have a more positive impact on trade than it does on countries that are nearer to one another.