E-COMMERCE IMPACT ON ECONOMIC GROWTH

Abstract

Ever since the dawn of merchanting, traders have sought ways to ease the cost of transactions. The recent growth of information and communication technology provided a wide range of solutions for international and national transactions by introducing e-commerce. As a result of this development, e-commerce recently emerged as a dominant transaction activity with a significant impact on the national economies. In recent years the potential of e-commerce has been widely discussed, with a particular focus on its effects on greater economic welfare and prosperity. Yet, despite an abundance of studies that have been done on investigating the role of e-commerce in an economy, a thorough and detailed econometric examination on its impact is still an underexplored avenue. This paper attempts to bridge this gap by investigating the impact of volume of online transactions (e-commerce) and gross capital formation on economic growth, using panel data on 31 European countries covering a 16 years’ period. The empirical panel data model is estimated by employing the Generalized Method of Moments. The main findings from the study show that e-commerce and gross capital formation have positive and significant effects on GDP per capita based on purchasing power parity, with e-commerce having a weaker development-enhancing effect in comparison to gross capital formation. In addition, this paper proposes a fruitful discussion on how to provide balance between the growth of e-commerce, the focus on improving other aspects and generating optimal economic welfare and prosperity. Our paper ends with directions for future research.