Economic Implications of E-Commerce

By Sumanjeet | Indian Journal of Economics and Business, December 2007 | Go to article overview

Economic Implications of E-Commerce


Sumanjeet, Indian Journal of Economics and Business


Abstract

Business and economy are inextricably linked with the development and implementation of new technology. While e-commerce clearly has a positive impact on the business sector, doubts have been raised about its impact on the macroeconomic growth and development. Impact of Internet and e-commerce on business in industrialized, and to a limited extent, in less industrialized countries, has been extensively discussed. There are very few studies which have focused on the impact of internet and e-commerce on the economic activities. In fact, this domain of Internet activity has received relatively little attention. Therefore, it has become pertinent to analyze the implications of e-commerce and internet on the economy. The present paper aims to study the economic implications of e-commerce. Impact of e-commerce on the different segments (intermediation process, agriculture, labour market, transportation, taxation, cost price and competition, monetary system) of economy has been studied in this paper. In the end of the paper, concluding remarks are given.

JEL Classification Codes: 02, 03, 04, I2

Keywords: E-Commerce, Implications, Impact, Economic Activities, productivity

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The information revolution aided by the revolution in the telecommunications and institutional innovations had initially promised to change the nature of the market altogether. The market's primary role as merely a place where buyers and sellers meet (it had seemed) now has been revolutionized by the impact of the information revolution on its subsidiary role, i.e., as a transmission belt of information. Today market is a place where there is no intermediaries between a seller of a good and its final buyer to the mutual benefit of both parties (Sengupta, 2004). The Internet and its enabled technologies (especially electronic commerce) have caused the costs of many kinds of market mterachon to plummet (Saloner, 2001). Not only cost reduction, e-commerce has the potential to stimulate growth and employment in industrialized as well as developing countries. Further, e-commerce allows economics agents (both buyers and sellers) to interact more effectively by creating new market opportunities (Mukhopadhyay, 2002). Thus, e-commerce has strong economic implications at both micro and macro level.

E-COMMERCE AND ECONOMIC GROWTH (1)

While e-commerce clearly has a positive impact on the business sector, doubts have been raised about its impact on the macroeconomic growth, and productive growth (2) in particular. Various studies show that e-commerce had an impressive performance particular in terms of productivity growth (Solow, 1987; Liebowitz, 2003; Lichtenberg, 1995; Sichel, 1997; Brynjolfsson & Hitt, 1996; Berndt et al., 1992; Dedrick et al., 2003 and Parson et al., 1993). The US, which leads the world in IT and e-commerce, has had a notable economic performance, particularly in terms of productive growth, since 1995. But, the same was not happened with the developing countries as they failed to catch up technologically with the industrialized world. To assess the broader economic impact of e-commerce and the ramifications of developing countries' catching up or not, UNCTAD has conducted a quantitative analysis based on two scenario: one in which the developing countries fall behind technologically and one in which they catch up with the developed countries. The analysis is centered on cost saving and assume that e-commerce can reduce costs of services, particularly in retail and wholesale trade, transport and financial and business services. Cost savings in services are stimulated through a productive growth scenario, which allow for the analysis of such macro-economic variables as GDP, welfare, wages and terms of trade. The analysis is a unique application of a computable general equilibrium model to e-commerce at the global level.

According to the report, under the first scenario developed countries would have welfare gains of $117 billion, while the developing world (excluding Asia) would lose welfare of $ 726 million. …

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