What impact will e-commerce have on the U.S. economy?

• Published in: Economic review (Kansas City) 2004-03, Vol.89 (2), p.53
• Main Author: Willis, Jonathan L
• Format: Article
• Language: English
• Subjects: Business to business commerce; Consumers; Cost control; Economic conditions; Economic forecasts; Economic impact; Electronic commerce; Electronic data interchange; Federal Reserve banks; Inflation; Internet access; Productivity; Recessions; Retail sales; Retail stores; Shopping
• ISSN: 0161-2387; 2163-422X

In recent years, e-commerce has emerged as the fastest growing sector of the U.S. marketplace. Despite the contraction in the high-tech industry during the recent recession, firms have continued to enter and expand their presence in e-commerce, and consumers have increased the number of purchases made online. E-commerce currently represents a very small share of overall commerce, but it is expected to continue to expand rapidly in coming years. As e-commerce grows, so will its impact on the overall economy. The primary route by which e-commerce will affect the economy at large is through its impact on productivity and inflation. Businesses and consumers that use e-commerce benefit from a reduction in costs in terms of the time and effort required to search for goods and services and to complete transactions. This reduction in costs results in higher productivity. An even larger increase in economywide productivity levels may result from productivity gains by firms not engaged in e-commerce as they respond to this new source of competition. Continued expansion of e-commerce may also lead to downward pressure on inflation through greater competition, cost savings, and changes in price-setting behavior of sellers. Willis examines the economic factors that have contributed to the rapid growth of e-commerce and assesses how the future growth of e-commerce may affect the overall economy. He concludes that if e-commerce continues to grow rapidly, it could lead to an increase in productivity growth and downward inflationary pressures that persist for several years.