WHAT IMPACT WILL E-COMMERCE HAVE ON THE U.S. ECONOMY?

          E-commerce, or electronic commerce, is one of the fastest growing sectors of the U.S. marketplace and its impact on the overall economy, although currently relatively small, is expected to grow in the coming years. Understanding the potential impact e-commerce might have on the economy is important for policymakers and forecasters attempting to project future economy activity.

          “What Impact Will E-Commerce Have on the U.S. Economy?” takes a look at the factors contributing to the growth of e-commerce and the implications of its continued expansion on productivity growth and inflation. The article, by economist Jonathan Willis, is featured in the second quarter edition of The Economic Review.

          Willis finds that inflation and productivity are two areas of economic activity that are likely to be affected by e-commerce. The cost savings achieved by e-commerce firms have led to higher productivity and productivity growth will likely continue with new innovations.

          The emergence of e-commerce has also made the marketplace more competitive, Willis says, creating downward pressure on inflation as firms charge lower prices. Improved use of technology has also allowed so-called e-firms, or businesses that are engaged in activity online, to respond more quickly to changes in the economy. Businesses without an online presence, he writes, will also increasingly need to lower prices and improve productivity to remain competitive.

          “Together, these changes may alter behavior of inflation in response to an economic shock,” Willis writes.

          The article and past editions of the economic review are available on the Bank’s Web site at www.kc.frb.org.

# # #

Return to www.kansascityfed.org