Abstract: Internet can reduce the transaction costs in foreign trade, but it is still unknown from which path it can affect the trade. This paper tries to quantify the impact of Internet on international trade. The results show that Internet has a positive impact on international trade. The higher the Internet penetration of the exporting country is, the greater the bilateral trade flow is, the trade growth effect of Internet penetration of the exporting country will be 13.2 percent; the major cause lies in the increase in the export prices. When the trade growth effect of Internet penetration of the importing country is 10.5 percent, the cause will be the increase in trade quantity. This study also finds out that when both trade parties have a higher rate of Internet penetration, Internet will have a positive effect on export flow, extensive margin and intensive margin, and the impact of the Internet penetration on bilateral trade is different with different types of products.

Key words: Internet; trade; extensive margin; intensive margin