The Internet’s Impact on Trade – An Analysis Applying the Gravity Theory

The gravity model of international trade analyzes synergistic trade flows based on the economic size and distance between two parts. The model suggests that trade tends to fall with distance due to geographical distance. This paper an analyzes the internet's impact on the geographical distance of the gravity model. Firstly, it briefly describes the gravity model focusing on the importance of geographical proximity. Secondly, it illustrates the introduction of the internet and changes that occurred by it specifically targeting intangible services developed through the introduction of the internet. Thirdly, it analyzes the internet's impact on the distance advantages with historical trade data. Lastly, this paper forecasts how the model will change due to an increasing information technology dominance economy