December, 12th, 2018
"Spinning the Web: Codifiability, Information Frictions and Trade"
This paper studies how information and communication technology (ICT) improvements affect trade in manufactured goods. We examine the impact of a revolutionary technology, the roll-out of the global telegraph network, on the 19th century cotton textile industry. Using ruggedness of the submarine terrain as exogenous variation to predict telegraph connections, we show that faster communication has heterogeneous effects on the imports of goods. More specifically, imports increase only for codifiable goods, i.e., products that can be specified at a distance using words, rather than requiring an exchange of a physical sample. These results shed light on the importance of information frictions in global value chains, which are largely composed by manufactured products.