The Power of Information: The Effect of Mobile Phone Penetration on Bilateral Trade Volume

Abstract

Since its global introduction in 1990, mobile phone has quickly become the main source of communication globally. In some developing countries, mobile phones are serving as the primary method of communication. Also, with the recent introduction of smart phones, the mobile phones are playing a crucial role in our lives. In the era in which information is power, mobile phones’ close association with information and communication raises a natural question of whether mobile phone penetration has any tangible effect on the world economy. Using a panel dataset of bilateral trading pairs over the years 1990 to 2006, this paper attempts to examine the correlation between mobile phone penetration and bilateral trade volume. Preliminary empirical work using the panel data set and various regression models finds that mobile phone subscription rates in the exporting and importing countries have positive and statistically significant impact on international trade volume. Closer examination of the mobile phone level controlling for possible omitted variable bias using other information and communication technologies and relevant technological advancement measure, the pure effect of mobile phone penetration is found to be actually negative. The break down of global trading pattern into developed and developing country pairs also provide examples to support the theoretical framework developed to explain why and how mobile phones affect international trade.