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.

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What did Jeremy Corbyn really say about Bin Laden?

He's been critiqued for calling Bin Laden's death a "tragedy". But what did Jeremy Corbyn really say?

Jeremy Corbyn is under fire for describing Bin Laden’s death as a “tragedy” in the Sun, but what did the Labour leadership frontrunner really say?

In remarks made to Press TV, the state-backed Iranian broadcaster, the Islington North MP said:

“This was an assassination attempt, and is yet another tragedy, upon a tragedy, upon a tragedy. The World Trade Center was a tragedy, the attack on Afghanistan was a tragedy, the war in Iraq was a tragedy. Tens of thousands of people have died.”

He also added that it was his preference that Osama Bin Laden be put on trial, a view shared by, among other people, Barack Obama and Boris Johnson.

Although Andy Burnham, one of Corbyn’s rivals for the leadership, will later today claim that “there is everything to play for” in the contest, with “tens of thousands still to vote”, the row is unlikely to harm Corbyn’s chances of becoming Labour leader. 

Stephen Bush is editor of the Staggers, the New Statesman’s political blog.