Does “Internet Plus” Promote New Export Space for Firms? Evidence from China

• Author: Xinyue Hu,Xianhai Huang,Xueyin Song
• Date: 01 November 2018
• Published date: 01 November 2018
• DOI: http://doi.org/10.1111/cwe.12261

©2018 Institute of World Economics and Politics, Chinese Academy of Social Sciences

China & World Economy / 50–71, Vol. 26, No. 6, 2018

50

*Xianhai Huang, Professor, School of Economics, Zhejiang University, China. Email: hxhhz@126.com;

Xueyin Song (corresponding author), Post Doctor, School of Economics, Zhejiang University, China. Email:

xueyin.song@zju.edu.cn; Xinyue Hu, Lecturer, School of Economics, Hangzhou Dianzi University, China.

Email: nicolezju@126.com. This research was funded by the Key Project of Zhejiang Province Social Science

Plan (No. 18NDJC001Z), the China Postdoctoral Science Foundation funded project (No. 2017M621898, No.

2018T110580), the Major Project of the National Social Science Foundation of China (No. 15ZDB156), the

Key Project of the National Natural Science Foundation of China (No. 71433002) and Zhejiang University

REOD (No. 201801). Song deeply appreciates the excellent comments provided by Jean-Louis Arcand, Pinghan

Liang, Linhui Yu and Shiqi Guo during his studies as a visiting fellow at the Graduate Institute, Geneva.

Does “Internet Plus” Promote New Export Space

for Firms? Evidence from China

Xianhai Huang, Xueyin Song, Xinyue Hu*

Abstract

Based on data from the Chinese Industrial Enterprises Database, this paper investigates

the effect of “Internet Plus” on the trade destination mix at the enterprise level. The

analysis extends the classic dual margins to three dimensions: destination extensive,

destination intensive and destination structural margins. The paper suggests that

connecting to the internet not only raises Chinese firms’ propensity to export, but

also extends the destination extensive margin. In addition, Internet Plus could create

a synergistic effect for internet-enabled enterprises, that is, the development of the

destination country’s internet access benefits domestic firms’ export participation.

Finally, the paper finds that Internet Plus, rather than increasing the intensive or

structural margins, leads to the transfer of exports to lower-middle-income countries

and helps firms achieve competitiveness and thus increases their profit. The paper

provides an explanatory mechanism and empirical evidence for rms’ use of the internet

to optimize export space.

Key words: extensive margin, intensive margin, internet, structural margin, trade

JEL codes: C23, D83, F14, F17

I. Introduction

In the past 10 years, international economics, especially in the trading eld, has taken on

©2018 Institute of World Economics and Politics, Chinese Academy of Social Sciences

“Internet Plus” and Export Space for Firms 51

two opposing stylized facts. On the one hand, globalization is on a downward path, and

trade protectionism is strengthening. According to the World Trade Statistical Review

(WTO, 2016), global trade increased by only 3.1 percent annually during 2008–2015,

compared to 6.9 percent during 1990–2007. On the other hand, the internet has become

a central element of globalization and trade, encompassing export and import through

online channels, and has seen a strong momentum of rapid growth over the past decades,

quickly becoming an important driving force and a new channel for international trade.

China has become one of the leading forces promoting globalization. “Internet

Plus,” which was launched by the Chinese government to promote firms’ application

of internet technology in production and sales, has enabled rms to achieve signicant

performance in international trade. Internet trade, or importing and exporting online,

has rocketed, in sharp contrast to the negative growth of total trade in 2015 and 2016.

According to the yearly report E-commerce in China edited by the Chinese Ministry

of Commerce, cross-border internet trade grew 28 percent on average annually during

2008–2015, and contributed 19.6 percent to China’s total trade in 2015. It is forecasted

that internet trade will account for 40 percent of China’s overall trade in 2020,1 far

above the average proportion of internet trade in other countries.

Scholars of international economics have explored the relationship and mechanisms

between internet development and trade growth. There is extensive information on

search and sunk costs in international trade. The development of internet trade could

signicantly reduce the bilateral costs of information seeking and exchange, and promote

trade of a rm in two directions: export product mix and export destination mix.

Existing research mainly focuses on product mix dynamics, analyzing the inuence

of the internet on rms’ propensity to export and the dual export margins (Melitz, 2003;

Felbermayr and Kohler, 2006). However, exporting firms are not only multi-product

based, but also multi-destination based (Helpman et al., 2008). This paper argues that

the behavior of an exporting rm is an optimal choice of product and destination mix.

We investigate the influence of the firm’s Internet Plus behavior, namely, the choice

of creating an official website, on its export destination dynamics. To the best of our

knowledge, the existing literature does not include specic in-depth analysis of this issue.

The “new” new trade theory (Melitz, 2003; Bernard et al., 2011; Mayer et al.,

2014) assumes that in terms of products, export growth derives from two sources:

extensive and intensive margins. Our study extends the classic dual product margins

to three margins from the destination dimension: extensive, intensive and structural

1Data were collected from the report Cross-border E-commerce Development, released by Corporate

AliResearch, available from: http://www.aliresearch.com/blog/article/detail/id/21054.html.