How the Internet Promotes China's Exports: A Firm‐level Perspective

• Date: 01 September 2020
• Author: Yuqing Wang,Bo Pang,Zhen Chen,Yifei Mu,Yibing Ding
• Published date: 01 September 2020
• DOI: http://doi.org/10.1111/cwe.12329

©2020 Institute of World Economics and Politics, Chinese Academy of Social Sciences

China & World Economy / 118–142, Vol. 28, No. 5, 2020

118

How the Internet Promotes China’s Exports:

A Firm-level Perspective

Yifei Mu, Zhen Chen, Yibing Ding, Yuqing Wang, Bo Pang*

Abstract

The development of information and communications technology (ICT), particularly the

Internet, has reduced trade costs. However, it remains unclear whether these reduced

costs are reflected in the “extensive margins” of firms’ exports (which refer to the

probability of fi rms exporting) or the “intensive margins” (which refer to the value of

fi rms’ export). To test this, we used the concepts of information cost and binary margins,

an augmented trade model of firm heterogeneity, a two-stage Heckman estimation,

and data from the World Bank Enterprise Survey of Chinese fi rms in 2012. The results

revealed that reduced trade costs from the use of ICT were positively related to extensive

margins but that the connection with intensive margins was not signifi cant. The results

lead to the conclusion that reduced information costs related to a firm’s exporting

behavior were primarily reflected in variable trade costs. This study offers theoretical

and empirical evidence for China’s policies towards the Internet, which are relevant for

the export of manufactured goods. The government should encourage the use of ICT to

enhance fi rms’ export opportunities while facing current trade policy uncertainty.

Key words: fi rm heterogeneity, information cost, Internet Plus, margins of trade

JEL codes: F12, F14, L86

I. Introduction

Information technology and the Internet have promoted economic and cultural exchanges

among countries worldwide by connecting people and facilitating communication among

*Yifei Mu, Associate Professor, School of International Economics and Trade, Dongbei University of Finance and

Economics, China. Email: yifei_m@sina.com; Zhen Chen (corresponding author), Associate Professor, School

of Economics and Management, Dalian University of Technology, China. Email: czhen1980@163.com; Yibing

Ding, Professor, School of Economics, Jilin University, China. Email: dingyb@jlu.edu.cn; Yuqing Wang, School of

Economics and Management, Dalian University of Technology, China. Email: 1045796868@qq.com; Bo Pang, PhD

Candidate, School of International Economics and Trade, Dongbei University of Finance and Economics, China. Email:

pangbocl@163.com. This work was supported by the Major Programs of National Social Science Foundation of China

(Nos. 18ZDA095 and 17VDL012), the Ministry of Education of China Youth Fund Program (No. 17YJC790110), and

the Department of Education of Liaoning Province’s Youth Fund Program (No. LN2017QN017).

©2020 Institute of World Economics and Politics, Chinese Academy of Social Sciences

Internet and China’s Exports 119

firms. China’s information technology industry has developed rapidly in recent years.

“Internet Plus” has changed traditional business models, especially in the context of

international trade friction and trade policy uncertainty. Through the use of information

technology and the Internet, reduced trade costs can help stabilize and diversify exports.

Studies have postulated that the development of information and communications

technology (ICT) has reduced communication costs by reducing the fees that fi rms are

required to pay. The Internet provides convenient and cheap access to international

market information, creating favorable conditions for businesses to engage in cross-

border sales (Rauch, 2002). Currently, China is facing trade friction as a result of

deglobalization. Increasingly, policies focus on stabilizing trade.1 Reducing trade

costs is a key approach to achieve export stabilization. Information costs are a crucial

component of trade costs, so it is necessary to investigate how the uses of ICT impact

trade costs and how the use of the Internet affects Chinese fi rms’ export opportunities

and overseas revenue.

Economists currently consider the use of ICT as a cost-reducing element for fi rms.

Anderson and van Wincoop (2004) comprehensively measured trade barriers. They

estimated that the costs of matching supply and demand constituted more than 6 percent

of trade costs in 2002. Daly and Miller (1998), Freund and Weinhold (2004), and

Choi (2010) explored the positive impacts of ICT on international trade and noted the

increasing volumes of goods and services. Through the use of email, search engines,

or corporate websites, exporting fi rms can easily reduce export sunk costs and promote

trade. Improved Internet connectivity impacts developing nations considerably more

than relatively developed nations. Using a panel of 200 countries between 1990 and

2006, Lin (2015) found that Internet use reduced information costs in international trade,

obtaining results similar to those of Choi (2010). Osnago and Tan (2016) examined data

from 2001 to 2013 and found that higher Internet use by both exporters and importers

increased trade value. Similar results were obtained in studies specifi c to China. Huang

and Chen (2005) posited that ICT promoted the development of service trade and

the “commercial existence” mode of service trade. Feng and Liu (2010) suggested a

positive role for the Internet in China’s exports. The analysis by Zhu and Su (2012)

suggested regional differences across countries. The authors promoted caution in the use

of aggregated results and identifi ed signifi cant impacts only in the west region.

However, the studies mentioned above failed to consider differences among

firms. The literature on firm heterogeneity emphasized such differences and argued

1In August 2018, the Political Bureau of the CPC Central Committee released six “stabilization” policies.

Stabilizing foreign trade ranked third.