Is It “Trade?�? Data Flows and the Digital Economy

Abstract

This paper is a preliminary attempt to analyze information as a factor of production in international trade. It is a first attempt to get a handle on the direction and balance of information flows. We have obtained quantitative data about Web-related data flows between countries, and we explore how those flows are correlated to trade in goods . Using Telegeography data on “Server Location as a Percentage of Top Websites,” we found that 2/3 of all web traffic is transnational. More than half of the top 100 web sites in 9 of the world’s 13 sub-regions are hosted in the United States. Central Asia and Eastern Europe, for whom 37% and 41% of their most popular websites, respectively, are requested from the US. Even well-developed Western Europe makes almost half of its top 100 web site requests to US-based sites. For US users, on the other hand, only about 26 of the top 100 websites are hosted outside the country, and 20 of them are in Europe.Ironically, East Asia, which has a huge goods trade surplus with the developed economies, particularly with the US, has the largest negative balance in the relationship between incoming and outgoing Web requests. Indeed, we found a very strong negative correlation (-0.878) between web traffic balances and the balance of trade in goods across all subregions. Once these aspects of transnational data flows are quantified, the paper discusses the implications of these findings for policy, especially trade policy. It raises the question whether the goal of a free and open digital economy is best advanced by placing information exchanges in the trade paradigm and pushing for free trade, or by asserting a more general human right to free and open information exchanges across borders, which has social and political as well as economic consequences. These two approaches are not mutually exclusive, of course, but by making these distinctions we clarify the debate over international policy in the digital world.