Title: The Alibaba Effect: Spatial Consumption Inequality and Welfare Gains from E-Commerce

Speaker: Lixin Tang, Assistant Professor, Shanghai University of Finance and Economics

Time: December 11th, 2017 13:30-15:00

Venue: Conference Room 106B, Zhonghui Building

Abstract:

Domestic trade costs imply more restricted access to consumption varieties in smaller and more remote 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. We employ unique data from the dominant online platform in China to study the spatial distribution of online sales. Using population as the main measure for market size and market potential as the main measure for remoteness, we show that online expenditure share is negative correlated with both population and market potential. We then build a multi-region general-equilibrium model of online shopping. We estimate the key shipping cost parameters of the model and calibrate the rest of parameters to match salient features of the Chinese economy. We then use the calibrated model to perform counterfactual experiments to study the effects of e-Commerce. The welfare gains from e-Commerce are about 1.6% for an average city, with larger percentage gains for residents in smaller and more remote cities.