How does the national e-commerce demonstration city pilot policy boost economic growth? Evidence from China

• Published in: Empirica Vol. 51; no. 4; pp. 929 - 975
• Main Authors: Yang, Yun, Hao, Feng, Meng, Xingchen
• Format: Journal Article
• Language: English
• Published: New York Springer US 01-11-2024; Springer Nature B.V
• Subjects: Application; Asymmetric information; Cities; Costs; Digital technology; Econometrics; Economic growth; Economics; Economics and Finance; Electricity; Electronic commerce; European Integration; GDP; Gross Domestic Product; Industrial Organization; International Economics; Intervention; Labor costs; Local government; Macroeconomics/Monetary Economics//Financial Economics; Original Paper; Pilot projects; Public Finance; Resource allocation; State intervention; Technology; Trade; Transaction costs; China; NEDC; O47; L81; Economic growth; O38; E23; Local government intervention; Mediating effect; Cost–benefit analysis
• ISSN: 0340-8744; 1573-6911
• DOI: 10.1007/s10663-024-09622-2

Given that e-commerce is an essential way to improve the efficiency of resource allocation and boost economic growth in the era of digital technology, China has launched the national e-commerce demonstration city (NEDC) pilot project to enhance the application and extension of e-commerce. This study aims to explore the effect of the NEDC pilot policy on economic growth. Based on data sources from 285 prefecture-level cities in China from 2005 to 2021, this study assesses the effect of the NEDC pilot policy on economic growth by applying the staggered difference-in-differences (DID) method with the two-way fixed effects (TWFE) model. In addition, this study investigates the issues of heterogeneity, mediating effects, and cost–benefit of the NEDC pilot policy. The major results of this study are as follows: (1) Compared to non-demonstration cities, the implementation of the NEDC pilot policy resulted in a 4.1% increase in GDP in demonstration cities. Moreover, this boosting effect is particularly significant in prefecture-level cities associated with a high level of digital technology application; however, this positive effect disappears in prefecture-level cities with a high degree of local government intervention. (2) Decreasing transaction costs, increasing business opportunities, and reducing labor misallocation are the main mediating channels for the impact of the NEDC pilot policy on economic growth, implying that the NEDC pilot policy has played an important role in reducing information asymmetry, transaction links, and resource misallocation. (3) The benefits of the NEDC pilot policy exceed its costs as revealed by the fact that the pilot policy has dramatically increased the ratio of GDP to network costs, electricity consumption costs, and labor costs. This study recommends that when strengthening the application of e-commerce, it is essential to reduce excessive government intervention and enhance e-commerce support measures to ensure the role of e-commerce in facilitating economic growth.