Fact of the Week: When a Country Increases Internet Subscriptions and Speeds by 1 Percent Each, Its Exports Increase by 0.8 Percent

Information technologies such as the Internet and telecommunication networks enable global trade to flourish in two ways that are closely intertwined. First, they give consumers access to a greater diversity of products, including many that are of lower cost and better quality than they would be able to find otherwise. Second, they give firms access to larger overseas markets and a wider selection of inputs for their products. Therefore, when a country increases the number of people and businesses using the Internet and boosts speeds, its households and industries both benefit.

Ana Abeliansky and Martin Hilbert estimate the impact that IT adoption has on trade by analyzing Internet subscriptions and bilateral trade data for 122 countries between 1995 and 2008. They find that when a country increases Internet speeds and the number of subscribers by 1 percent each, it exports 0.8 percent more goods. Separating out the effects of each variable, they find that a 1 percent increase in speed predicts a 0.5 percent increase in exports, and a 1 percent increase in subscribers predicts a 0.3 percent increase in exports. Digging further, the analysis finds that developed countries see a bigger impact from increasing Internet adoption, while developing countries see a see a bigger impact from faster speeds. The authors chalk this up to likely diminishing marginal returns from additional broadband speeds.