Presenter: Marc Rysman
Paper: “International Trade in Data: Investment and Usage of the Subsea Internet Cable Network,” joint work with Jihye Jeon
Abstract:
We study the construction and use of undersea internet cables, a critical piece of communication infrastructure. We view traffic on these cables as {\em international trade in data}. We propose a model in which country-to-country trade in data, similar to a gravity equation model, traverses the cable network leading to interregional flows observed in our data. On the supply side, firms decide whether to invest in new cables, recognizing the impact of their investment in any one market on global internet flows. We estimate this model using new data on cable construction and usage via moment inequalities. We use the results to decompose growth in global internet usage into growth in demand and improvements in the cable network. We find that the latter is an important contributor on par with the former. Our counterfactuals highlight the role of business stealing and network externalities in generating inefficient allocation of cables.