The Effect of Online Search on International Trade

Abstract

ABSTRACT In the literature, search engines are considered as effective tools for obtaining information. However, little attention has been paid to the effect of search engines on international trade even though information (barrier) is very important in international trade. To address this issue, we analyse how online search, proxied by Google Trends Interest by Region (GTIR), affects international trade in a classic gravity model. Our results show that online search intensity between the two countries can significantly promote international trade. This finding is robust to a wide range of tests, including instrumental variable estimation, different specifications and different estimators. Mechanism analysis shows that online search is likely to increase trade by overcoming unfamiliarity and reducing trade risks. Since the role of online search is similar to that of traditional networks, we further conduct extended analysis and find that online search is likely to substitute, rather than complement, migration networks in international trade. Since many traditional networks are broken due to the pandemic, online search is promising to become increasingly important in the future.