Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/216999
Authors: 
Bailey, Michael
Gupta, Abhinav
Hillenbrand, Sebastian
Kuchler, Theresa
Richmond, Robert
Stroebel, Johannes
Year of Publication: 
2020
Series/Report no.: 
CESifo Working Paper 8248
Abstract: 
We use anonymized data from Facebook to construct a new measure of the pairwise social connectedness between 180 countries and 332 European regions. We find that two countries trade more with each other when they are more socially connected and when they share social connections with a similar set of other countries. The social connections that determine trade in each product are those between the regions where the product is produced in the exporting country and those where it is used in the importing country. Once we control for social connectedness, the estimated effect of geographic distance on trade declines substantially, and the effect of country borders disappears. Our findings suggest that social connectedness increases trade by reducing information asymmetries and by providing a substitute for both trust and formal mechanisms of contract enforcement. We also present evidence against omitted variables and reverse causality as alternative explanations for the observed relationships between social connectedness and trade flows.
Subjects: 
international trade
social connectedness
contract enforcement
information frictions
JEL: 
F10
F50
F60
Document Type: 
Working Paper

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