Communication Cost Sharing, Information Technology,

and U.S. Imports of Differentiated Goods

Linghui Tang

Dept. of Economics and International Business

Lebow College of Business

Drexel University

Philadelphia, PA 19104

Tel: 215-895-1034

Fax: 215-895-6975

Email: lt27@drexel.edu

Abstract

Based on the assumptions of average cost pricing and cost sharing for international communications, this paper shows that a decline in communication costs will increase bilateral trade of differentiated products between countries dissimilar in economic size. It has been found that the decrease of communication costs through the development of information technology in the rest of the world significantly increased U.S. imports of differentiated goods after the 1970s, in particular with countries that are much smaller than the United States.