The adoption and impact of E-commerce in rural China: Application of an endogenous switching regression model

Abstract

Rural e-commerce is embraced as an opportunity for economic advancement for farmers in developing countries. However, little empirical evidence has been presented about the factors that affect farmers' decisions to adopt e-commerce, and how much farmers benefit from as well as cost on the adoption. This study addresses this research gap by analyzing rural household data collected in the Shandong, Henan and Shaanxi provinces of China in 2019, utilizing an endogenous switching regression (ESR) model to address the self-selection bias issue. The empirical results show that education level, smartphone use, off-farm employment and social capital significantly impact farmers' decisions to adopt e-commerce. E-commerce adoption drives a significant increase in selling price; yet simultaneously causes a tremendous increase in marketing costs for farmers. The operation of e-commerce requires farmers to pay considerable costs that were formerly undertaken by intermediaries in conventional exchange transactions. Still, farmers are seen to benefit from adopting e-commerce, as the gross return shows an increase. The PSM approach is employed for the robustness check, which obtains consistent results with the ESR model. The results of the heterogeneous analysis show that the rural households that are located closer to the local township benefit more from the adoption of e-commerce. Overall, this study presents a better understanding of the actual impacts of adopting e-commerce for farmers in rural China, which provides valuable insights for other developing countries or regions that also engage in rural e-commerce to promote the development of rural economy.