Internet Adoption and Firm Exports in Developing Countries

This paper investigates the effect of Internet technology on how firms access export markets directly or via intermediaries. Empirical evidence suggests that technology diffusion is geographically localised, with knowledge spillovers from neighbouring adopters decaying quickly over short distances. To address the potential endogeneity of Internet adoption, I construct an instrument that captures these local spillover effects, using the real-world locations of IP addresses to measure the number of Internet connections in the firm’s neighbourhood. Using a cross-section of firms in 18 developing countries I find that Internet access magnifies direct trade with no discernible effect on intermediated trade. Adopting the Internet because of local knowledge spillovers increases direct exports as a proportion of firm sales by 32-36%. The analysis is robust to consideration of a wide range of potentially omitted variables. JEL classification: F12; F14; D22; L22; O33