ICT and the death of distance in international trade of flowers and wine

Abstract

Globalisation results when markets and industries become more integrated because of lower tariffs or reduced trade costs, or both. These costs have fallen over the long term because of sustained advances in transport technology and, even more dramatically, in information and communication technology (ICT). Moreover, advances in transport technologies have significantly reduced the time traded goods spend in transit (Hummels 2001). Improved transport and information technologies eventually were complemented by the modern global supply chain, an organisational innovation that leverages information and transport technology to better coordinate the activities of geographically dispersed economic agents. Direct communication costs tend to be a minor component of total transaction costs in international trade, and their share in total trading costs of any one shipment is smaller yet. Indirect communications cost, in particular the opportunity cost of imperfect coordination due to poor communication, are unknown but may be significant. Perhaps it is because of reduced loss of coordination that the diffusion of digital ICT - the 'digital grapevine' - is believed to stimulate international trade to an extent that appears to be large in proportion to the share of ICT costs in trading costs (Hummels 2007). Some of the information technology, such as satellite systems and network standards, are global commons and are available to all. Others, such as computers and wired networks, are exclusive goods. Because investment costs in computers and wired networks are significant, their diffusion across regions and countries is uneven. Moreover, the diffusion varies significantly across information technologies.