The effect of distance on cross-border flows, a standard proxy for trade costs, is 60 percent smaller on the eBay online platform than offline. The relative decline is not explained by the correlation of distance with other traditional trade cost variables, such as common legal systems and language, colonial links, transport costs, and trade agreements, but rather by a reduction of information frictions online. This loss of gravity is particularly important for remote countries with larger information asymmetries associated, for example, with higher levels of corruption, suggesting an important role for technology to help overcome market and government failures while bringing the global economy towards frictionless trade.
