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

51 Pages Posted: 23 Dec 2015 Last revised: 10 Dec 2016

Jingting Fan

University of Maryland - Department of Economics

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

Date Written: December 1, 2016

Abstract

Domestic trade costs imply more restricted access to consumption varieties in smaller and less connected cities. By eliminating the fixed cost of firm entry and reducing the effect of distance on trade costs, e-Commerce might disproportionately improve these cities’ access to varieties, and reduce the associated real income inequality across cities. 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 welfare gains from e-Commerce. We find the welfare gains from e-Commerce to be 1.6%. Furthermore, e-Commerce reduces the elasticity of real income with respect to population by 1.9% and the elasticity with respect to market potential by 4.1%.

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

University of Maryland - Department of Economics ( email )

College Park, MD 20742
United States

HOME PAGE: http://econweb.umd.edu/~fan/

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 ( email )

486 W. Circle Drive
110 Marshall-Adams Hall
East Lansing, MI 48824
United States

HOME PAGE: http://zouben.weebly.com/

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