International Trade and Social Connectedness

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.

The Geographic Spread of COVID-19 Correlates with the Structure of Social Networks as Measured by Facebook

“…In previous work, we have shown that this measure predicts a large number of important economic and social interactions. For example, social connectedness as measured through Facebook friendship links is strongly related to patterns of sub-national and international trade (Bailey et al, 2020b), patent citations (Bailey et al, 2018b), and investment decisions (Kuchler et al, 2020). More generally, we have found that information on individuals' Facebook friendship links can help understand their product adoption decisions and their housing and mortgage choices (Bailey et al, 2018a(Bailey et al, , 2019a.…”

Social Networks Shape Beliefs and Behavior: Evidence from Social Distancing During the COVID-19 Pandemic

“…Facebook networks therefore resemble real-world social networks more closely than networks on other online platforms where uni-directional links to non-acquaintances (e.g., celebrities) are common. Indeed, a number of prior studies show that Facebook networks predict many important real-world economic and social interactions including patterns of trade (Bailey et al, 2020a), patent citations (Bailey et al, 2018b), travel flows (Bailey et al, 2019b(Bailey et al, , 2020b, bank lending (Rehbein et al, 2020), social program participation (Wilson, 2019), investment decisions , and disease transmission . Information on individuals' Facebook friendship links can also help understand their product adoption decisions (Bailey et al, 2019c) and their housing choices (Bailey et al, 2018a(Bailey et al, , 2019a.…”

The Determinants of Social Connectedness in Europe

“…We also documented that it predicts a large number of important economic and social interactions. For example, social connectedness as measured through Facebook friendship links is strongly related to patterns of sub-national and international trade [6], patent citations [3], travel flows [5], investment decisions [13] and the spread of COVID-19 [14]. More generally, we have found that information on individuals' Facebook friendship links can help understand their product adoption decisions [7] and their housing and mortgage choices [2,4].…”