The Effect of Fast Internet on Employment: Evidence from a Large Broadband Expansion Program in China

• Published date: 01 May 2022
• Author: Qing Wang,Wenjing Xu,Yanghua Huang,Jidong Yang
• Date: 01 May 2022
• DOI: http://doi.org/10.1111/cwe.12420

©2022 Institute of World Economics and Politics, Chinese Academy of Social Sciences

China & World Economy / 100–134, Vol. 30, No. 3, 2022

100

The Effect of Fast Internet on Employment:

Evidence from a Large Broadband

Expansion Program in China

Qing Wang, Wenjing Xu, Yanghua Huang, Jidong Yang*

Abstract

Information and communication technology plays an important role in human life and

social production. The existing literature has mainly studied the economic impact of

such technology in developed countries; the use of broadband in developing countries

has been overlooked. This paper fi lls the gap by examining a broadband development

program in China. Diff erence-in-diff erence estimates show that the deployment of high-

quality broadband promoted regional employment in the skilled service sector. The

eff ect was larger in cities with a greater number of educated residents and cities in the

west of China. We also found that broadband development stimulated fi rm creation and

innovation. These fi ndings imply that broadband promotes innovation and provides new

impetus to the economic transition of emerging markets.

Keywords: broadband, communication infrastructure, employment, regional development

JEL codes: O14, O33, R23

I . Introduction

With the continuous development of information and communication technology

(ICT), and innovations in that fi eld, the high-speed broadband network has captured the

attention of the governments of most countries. The standards for broadband are diff erent

across countries and over time because they must refl ect contemporaneous technological

development. The Organization for Economic Co-operation and Development (OECD)

*Qing Wang, Associate Professor, International School of Business and Finance, Sun Yat-sen University,

China. Email: wangq577@mail.sysu.edu.cn; Wenjing Xu, Postgraduate Student, Department of Statistics,

University of Chicago, US. Email: xwj931122@gmail.com; Yanghua Huang, Professor, School of Applied

Economics, Renmin University of China, China. Email: y.h@ruc.edu.cn; Jidong Yang (corresponding author),

Professor, School of Economics, Renmin University of China, China. Email: yangjidong2001@163.com. Qing

Wang acknowledges the fi nancial assistance provided by the National Natural Science Foundation of China (No.

71903007). Jidong Yang acknowledges fi nancial support from Beijing Municipal for Building World-class

Universities (Disciplines) of the Renmin University of China.

©2022 Institute of World Economics and Politics, Chinese Academy of Social Sciences

The Eff ect of Fast Internet on Employment 101

defined broadband in 2006 as always-on internet access with fast speeds exceeding

256 kbps for downloading connections and 64 kbps for uploading connections. The US

Federal Communications Commission set the standard for broadband as a download

speed of 4 mbps and an upload speed of 1 mbps in 2011, and adjusted it to 10 mbps

for download and 1 mbps for upload in 2014. Although standards for broadband vary

by country, major countries have formulated broadband development plans to make

broadband penetration and increased speed part of their main development goals, to win

a commanding position in the technology competition.

The literature that examined the economic consequences of broadband in developed

countries found that it improved firm productivity, promoted economic growth, and

aff ected the labor market (Colombo et al., 2013; Gruber et al., 2014; Liao et al., 2016).

By contrast, few examples in the literature have addressed broadband deployment

practices in developing countries. Research in developing countries may have been

hampered by the lagged deployment of broadband because it is a relatively new

phenomenon that emerged in recent decades. Given the great heterogeneity between

developed and developing countries and the large public investment required to expand

broadband, research on the impact of broadband development in a developing country

is essential. This paper fills the gap and investigates how China’s broadband affects

employment, a fundamental concept of well-being, social stability, and industrial

structure.

China has experienced rapid growth in ICT in recent decades. Information

consumption, mobile payment transactions, and e-commerce have demonstrated

substantial economic opportunities within its digital economy. According to the China

Information Economy Report (White Paper) released by the Ministry of Industry and

Information Technology, China’s information economy output value was RMB18.6

trillion in 2015, which is 27.5 percent of the total GDP in that year, with a nominal

annual growth rate of over 17.5 percent. Broadband is a key ICT infrastructure. It is the

main content of information consumption and drives about 100 billion market scale of

the telecommunication business. Moreover, high-speed broadband helps information

technology to infi ltrate into every aspect of society and the economy. It accelerates the

informatization of education, health care, and other traditional industries, and promotes

some new industries, like the internet of Things, cloud computing, and big data

applications.

The development of China’s broadband networks in recent years has been led by

a representative initiative: China’s Broadband Strategic Program in 2013 (hereafter

Broadband China). For the first time, this initiative demonstrates that the Chinese

government offi cially recognizes broadband as a strategic facility, rather than an optional

Qing Wang et al. / 100–134, Vol. 30, No. 3, 2022

©2022 Institute of World Economics and Politics, Chinese Academy of Social Sciences

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technology. This program delineates four core objectives. First, to improve broadband

speed, application, and popularization. Second, to stimulate greater and more diversifi ed

information consumption. Third, to improve social welfare and people’s well-being.

Fourth, to stimulate entrepreneurship and innovation in society, and further boost

industrial transformation.

This initiative worked as a basic guideline to lead the national deployment of

broadband. Under the initiative, the number of households with broadband increased to

210 million by the end of 2013 and covered 55 percent of urban and 20 percent of rural

residential households. The national average penetration reached 40 percent. By the

end of 2015, the number of households with broadband increased to 270 million, which

covered 65 percent of urban and 30 percent of rural residential households. National

penetration reached 50 percent. The fi ber-based wireline broadband was introduced to

houses in urban areas and villages in rural areas. Household broadband access capacity

reached 20 mbps in urban areas and 4 mbps in rural areas. The number of broadband

subscribers over time is presented in Figure 1.

Figure 1. Number of broadband and dial-up subscribers

Source: Authors’ calculation using data from China’s Statistical Yearbook, published by the National Bureau

of Statistics of China.

Note: The vertical line denotes the year 2014.

In this paper, we consider a pioneer program under the design of Broadband China,

i.e., Broadband Demonstration City program, organized by the Ministry of Industry

and Information Technology in 2014 as a quasi-experiment. Our empirical strategy

explores variations in broadband development across time and between demonstration

and ordinary cities. To preview the results, we found robust evidence of an increase

in employment and reallocation of labor in the innovation sector along with the