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Unit 3 Micro: How eBaY boosts World Trade

Saturday, June 08, 2013
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For international transactions conducted online through eBay, the distance between buyers and sellers is far less important than for
offline trade. That is the central finding of research by Marcelo Olarreaga and colleagues, to be presented at the TIGER Forum 2013.

Their study shows that eBay reduces ‘information frictions’ and establishes trust between market participants that would not otherwise
have traded. What’s more, the gains from the adoption of eBay are largest in those parts of the world where they are most needed – in
remote countries with bad institutions that make it difficult for sellers to create a good reputation.

This suggests that e-commerce can become a development tool by helping remote sellers from unstable countries integrate into world markets. Export promotion agencies in these countries should probably redirect part of their effort towards connecting producers to online markets.

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