Abstract
The dramatic expansion of internet access in China allows us to analyze the impact of the internet on firm performance. Combining firm-level production data with province-level information on internet penetration, we examine how the internet rollout across Chinese provinces in 1999–2007 influenced firm export behavior. We show that the internet rollout boosted firm manufacturing exports, even before the rise of major e-commerce platforms. We take a closer look at why, addressing three questions: what aspects of firm performance were affected, what types of firm communication were facilitated, and what dimensions of the new communication medium were relevant? We find that the internet did not just enhance trade but improved overall firm performance; results are consistent with improvements in communication with both buyers and input suppliers; benefits arose not just from better communication but from establishing a visible virtual presence, and were enhanced by, but not contingent on, access to broadband.
Highlights
The scale and speed of the internet roll-out in China after the late 1990s was unprecedented
The firm-level data set used in our analysis is the annual survey conducted by China’s National Bureau of Statistics (NBS) covering all industrial firms that are state-owned, and those not state-owned with annual sales exceeding 5 million RMB for the period 1998-2007.10 Our analysis focuses on manufacturing firms, excluding mining and public utilities’ firms
We begin by presenting evidence of the effect of internet penetration measured by the number of internet users per capita on firm export performance in China
Summary
The scale and speed of the internet roll-out in China after the late 1990s was unprecedented. We combine firm-level manufacturing census data with data on provincelevel internet penetration in China to examine the effects on firm exporting behavior of the rollout of internet infrastructure across Chinese provinces from 1999 to 2007. The results suggest that the internet significantly reduces trade costs, even in the absence of broadband and major international e-commerce platforms serving the domestic market. This finding is relevant for the many developing countries trying to strike a balance between widening access to basic services and deepening it through the creation of a broadband network and connecting to major e-commerce platforms.
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