Another review of Why Nations Fail…

Well with a book like that and such authoritative authors, reviews to only grow.

Ross B. Emmett  of Michigan State University writes a nice review of the  book. He does not agree with few ideas regarding the book.

My review will capture three of my central problems with their argument. I begin with a methodological problem, which will bring me to a historical (and even anthropological/theological) problem, and then conclude with my niggling doubt about the authors’ concerns about inclusivity. 

Not getting into discussing the review for lack of time..

Of Talk, Economics, Love and Innovation

Nice different kind of paper by Ross B. Emmett.

He  insists on importance of talking in considering human interaction which helps understand economics better:

How ebay reduces trade costs..

Nice paper. The usual claim is globalization would lead to a borderless world. However, some papers showed distance thrived and people still traded more with neighbors..

In the 1990s advances in transportation and communication technologies led many commentators to believe that geographic distance between countries would soon no longer encumber international transactions (e.g. Cairncross 1997). Despite some anecdotal evidence in support of the \death of distance” hypothesis (e.g. Friedman 2005), a large number of academic papers suggests that distance is \thriving”, not \dying”. Disdier and Head (2008), using a meta-analysis based on 1,000 gravity equations, found that the estimated coecient on distance has been slightly on the rise since 1950. Chaney (2011) argues that the need for direct interactions between trading partners, resulting from information frictions rst highlighted by Rauch (1999), explains why distance still matters for international trade today. Similarly, Allen (2011) suggests information frictions account for 93 percent of the distance effect. This would suggest that advances in technology in recent decades have failed to reduce information frictions. Is this the death knell for the “death of distance” hypothesis? 

However research on ebay shows  different findings:

In this paper we breathe new life into the \death of distance” hypothesis. We argue that the right place to look is in online markets which, as opposed to offline markets, make full use of technologies that can reduce information frictions. Indeed, as argued by Hortacsu et al. (2009) and Goldmanis et al. (2010), the main benefit of the internet as a trade facilitator is to reduce search costs, and it is reasonable to think of online marketplaces as “frictionless” in this regard. Exporters no longer need to make multiple phone calls, send faxes, write emails, attend trade fairs and networking events. And while importers still incur some search costs, these are typically brought down to a simple internet search. In any event, online search costs are not necessarily correlated with how remote markets are.

The findings show:

Using a dataset on eBay cross-border transactions and comparable offnline trade flows, we estimated a distance effect on trade flows about 65 percent smaller online than offine.  The largest distance reducing eff ects are observed where they are most needed, i.e., in countries which are little known, have corrupt governments, high levels of income inequality, little internet penetration and inefficient ports. This is promising in terms of the potential for technology to render trade more efficient and development friendly. Importantly, the welfare gains from the reduction in distance related trade costs are large. If information frictions offline were reduced to the level prevailing online, real income would increase by 29 percent on average

Interesting research application of ebay..