If all international trade was done through eBay, the world would be 30 per cent richer

Frictionless trade is closer than ever before online, according to a new paper.

If all trade was as frictionless as it is on eBay, the world's real income could be almost 30 per cent higher, according to a new research paper from the European Trade Study Group, in a phenomenon known as the "death of distance".

The study looks at a dataset of cross-border transactions performed over eBay, modified to only include sales from businesses which were concluded with a fixed price; in other words, no auctions, and no customer-to-customer sales. While this removes the majority of transactions from their dataset, the modification is necessary to make eBay sales more accurately represent offline trade.

They find that, unsurprisingly, the effect of distance on trade volume is lessened online. Controlling for standard trade costs "such as the absence of a common language, a common legal system, a border, a colonial history, or a free-trade agreement", the distance effect is 65 per cent smaller online than offline.

That effect may be due to a mixture of three different frictions on trade: shipping costs, information frictions (you can, after all, only export to a country if you know someone there who wants to buy from you), or trust frictions.

Shipping costs appear to have little to do with the death of distance online – partially, it appears, because they have little correlation with distance. For instance, the average shipping cost, as a proportion of the cost of the item, is less from the USA to Iceland than it is for shipping from the USA to Canada or Mexico:

Instead, the real reduction in friction comes from the provision of both trust and information; as a result, "the distance-effect reduction is largest for exporting countries with high levels of corruption and which are relatively unknown to consumers, as measured by Google search results."

Worldwide, the increase in real income achieved by the reductions in distance effects is equal to 29 per cent, but that increase is spread very unevenly. At one end of the extreme, Brazil would see an increase in real income of 80 per cent, if only it could conduct all its trade with the rest of the world as efficiently as it does when that trade is on eBay.

At the other end, Belgium would actually lose out. It currently gains from information frictions, and would lose 0.9 per cent of its real income from trade if those frictions were abolished. It is the only country in the dataset which would lose out in such a way, though, and Britain would be up by over 40 per cent.

Of course, the study doesn't address every aspect of the online world. One of the reasons why eBay is so frictionless is that the company takes a (rather large) cut of the transaction in order to keep that infrastructure maintained. If all the world's trade was carried out on eBay, its annual revenue from international transactions alone would be in the order of $400bn, a significant increase on the $12bn it's earned in the last year. And let's not even talk about the Paypal fees.

Still, the paper strikes a blow in favour of those of us who think there are still significant gains to be made from the online economy.

eBay. Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

Photo: Getty
Show Hide image

Which CLPs are nominating who in the 2016 Labour leadership contest?

Who is getting the most CLP nominations in the race to be Labour leader?

Jeremy Corbyn, the sitting Labour leader, has been challenged by Owen Smith, the MP for Pontypridd. Now that both are on the ballot, constituency Labour parties (CLPs) can give supporting nominations. Although they have no direct consequence on the race, they provide an early indication of how the candidates are doing in the country at large. While CLP meetings are suspended for the duration of the contest, they can meet to plan campaign sessions, prepare for by-elections, and to issue supporting nominations. 

Scottish local parties are organised around Holyrood constituencies, not Westminster constituencies. Some Westminster parties are amalgamated - where they have nominated as a bloc, we have counted them as their separate constituencies, with the exception of Northern Ireland, where Labour does not stand candidates. To avoid confusion, constitutencies with dual language names are listed in square [] brackets. If the constituency party nominated in last year's leadership race, that preference is indicated in italics.  In addition, we have listed the endorsements of trade unions and other affliates alongside the candidates' names.

Jeremy Corbyn (46)

Bournemouth East (did not nominate in 2015)

Bournemouth West (nominated Jeremy Corbyn in 2015)

Brent Central (nominated Jeremy Corbn in 2015)

Bristol East (nominated Andy Burnham in 2015)

Cheltenham (did not nominate in 2015)

Chesterfield (did not nominate in 2015)

Chippenham (nominated Yvette Cooper in 2015)

Colchester (nominated Yvette Cooper in 2015)

Crewe and Nantwich (nominated Jeremy Corbyn in 2015)

Croydon Central (nominated Jeremy Corbyn in 2015)

Clwyd West (did not nominate in 2015)

Devizes (nominated Jeremy Corbyn in 2015)

East Devon (nominated Jeremy Corbyn in 2015)

East Surrey (nominated Andy Burnham in 2015)

Erith and Thamesmead (nominated Jeremy Corbyn in 2015)

Folkestone & Hythe (nominated Andy Burnham in 2015)

Grantham and Stamford (nominated Jeremy Corbyn in 2015)

Hampstead and Kilburn (nominated Yvette Cooper in 2015)

Harrow East (nominated Jeremy Corbyn in 2015)

Hastings & Rye (did not nominate in 2015)

Herefore and South Herefordshire (did not nominate in 2015)

Kensington & Chelsea (nominated Jeremy Corbyn in 2015)

Lancaster & Fleetwood (nominated Andy Burnham in 2015)

Liverpool West Derby (nominated Andy Burnham in 2015)

Leeds North West (nominated Jeremy Corbyn in 2015)

Morecambe and Lunesdale (nominated Andy Burnham in 2015)

Milton Keynes North (did not nominate in 2015)

Milton Keynes South (did not nominate in 2015)

Old Bexley and Sidcup (nominated Yvette Cooper in 2015)

Newton Abbott (nominated Liz Kendall in 2015)

Newark (did not nominate in 2015)

North Somerset (nominated Jeremy Corbyn in 2015)

Pudsey (nominated Andy Bunrnham in 2015)

Reading West (did not nominate in 2015)

Reigate (nominated Yvette Cooper in 2015)

Romford (nominated Andy Burnham in 2015)

Salisbury (did not nominate in 2015)

Southampton Test (nominated Jeremy Corbyn in 2015)

South Cambridgeshire  (did not nominate in 2015)

South Thanet (did not nominate in 2015)

South West Bedfordshire (did not nominate in 2015)

Sutton & Cheam (nominated Jeremy Corbyn in 2015)

Sutton Coldfield (did not nominate in 2015)

Swansea West (nominated Jeremy Corbyn in 2015)

Tewkesbury (nominated Jeremy Corbyn in 2015)

Westmoreland and Lunesdale (nominated Jeremy Corbyn in 2015)

Wokingham (nominated Jeremy Corbyn in 2015)

Owen Smith (12)

Altrincham and Sale West (nominated Yvette Cooper in 2015)

Battersea (nominated Yvette Cooper in 2015)

Blaneau Gwent (nominated Jeremy Corbyn in 2015)

Bow and Bethnal Green (nominated Jeremy Corbyn in 2015)

Reading East (did not nominate in 2015)

Richmond Park (nominated Jeremy Corbyn in 2015)

Runnymede and Weybridge (nominated Yvette Cooper in 2015)

Streatham (nominated Liz Kendall in 2015)

Vauxhall (nominated Liz Kendall in 2015)

West Ham (nominated Jeremy Corbyn in 2015)

Westminster North (nominated Yvette Coooper in 2015)

Wimbledon