Information infrastructure construction and optimization of resources allocation among firms: Evidence from “Broadband China” strategy

Abstract

The construction of information infrastructure stands at the forefront of current digital strategies aimed at fostering high-quality economic growth. However, misallocation of resources severely constrains the sustainable economic growth of developing countries. Using the firm-level data from the National Tax Survey database over the time period 2009 to 2016, this paper examines the impact of information infrastructure on the misallocation of resources among firms by utilizing the city-level “Broadband China” strategy as a quasi-natural experiment. We find that information infrastructure construction can significantly mitigate resource misallocation among firms by reducing information costs and breaking down market barriers, and that plays a crucial role in improving China's aggregate total factor productivity (hereafter, TFP). Furthermore, this mitigating effect of information infrastructure on misallocation is more significant in cities with higher economic development and administrative hierarchy, and it can alleviate the resource misallocation caused by scale discrimination. These findings enrich the research on information infrastructure construction and resource allocation efficiency and also offer valuable insights for developing countries seeking practical guidance.