Labour misallocation and digital infrastructure: evidence from a quasi-natural experiment of ‘broadband China strategy’

Abstract

ABSTRACT We use the expansion of broadband infrastructure in China as a quasi-natural experiment to examine the causal effect of digital infrastructure constructions on the reduction in labour misallocation. Combining the information of ‘Broadband China Strategy’ with Chinese city-level data in 2010–2020, we demonstrate that the expansion of digital infrastructure significantly reduces regional labour misallocation, particularly within non-provincial level cities. The effect is lagged and growing over time. Additionally, it is found that digital infrastructure primarily improves the allocation of labour by facilitating labour mobility. The above findings are robust, providing new insights into the construction of information infrastructure to improve resource allocation and increase productivity.