The Alibaba Effect: Spatial Consumption Inequality and the Welfare Gains from e-Commerce

55 Pages Posted: 23 Dec 2015 Last revised: 28 Jan 2018

See all articles by Jingting Fan

Jingting Fan

Pennsylvania State University, College of the Liberal Arts - Department of Economic

Lixin Tang

Shanghai University of Finance and Economics - School of International Business Administration

Weiming Zhu

University of Maryland - College Park

Ben Zou

Michigan State University - Department of Economics

Date Written: December 1, 2016

Abstract

Domestic trade costs imply more restricted access to consumption goods in small and remote cities. By eliminating the fixed costs of firm entry and reducing the effects of distance on trade costs, e-commerce can disproportionately improve these cities' access to varieties of consumption goods and reduce the spatial inequality in living standards. The implication of this hypothesis is that residents in small and remote cities purchase more intensively online. Using unique data from China's leading e-commerce platform, we show that online expenditure share is negatively correlated with population and market potential. We then build a multi-region general equilibrium model to quantify the impacts of e-commerce on domestic trade and welfare. We find that although the emergence of e-commerce partially crowds out inter-city trade originally taking place offline, the aggregate domestic trade increases in net. The welfare gains from e-commerce are 1.6% on average, and are 30% larger for cities in the smallest quintile of population and market potential.

Keywords: Intra-national trade cost, spatial consumption inequality, gains from e-commerce

JEL Classification: R13, F15, R12

Suggested Citation

Fan, Jingting and Tang, Lixin and Zhu, Weiming and Zou, Ben, The Alibaba Effect: Spatial Consumption Inequality and the Welfare Gains from e-Commerce (December 1, 2016). Available at SSRN: https://ssrn.com/abstract=2707293 or http://dx.doi.org/10.2139/ssrn.2707293

Jingting Fan

Pennsylvania State University, College of the Liberal Arts - Department of Economic ( email )

524 Kern Graduate Building
University Park, PA 16802-3306
United States

Lixin Tang

Shanghai University of Finance and Economics - School of International Business Administration ( email )

777 Guo-ding Road
Shanghai, 200433
China

Weiming Zhu

University of Maryland - College Park ( email )

College Park, MD 20742
United States

HOME PAGE: http://scholar.rhsmith.umd.edu/weimingzhu/

Ben Zou (Contact Author)

Michigan State University - Department of Economics ( email )

East Lansing, MI 48824
United States

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