The effect of the Internet on regional integration: evidence from China



Similar documents
How To Find Out What Determines Surrender Rate In Tainainese Life Insurance

Trade, Finance, Specialization and Synchronization: Sensitivity Analysis

National Money as a Barrier to International Trade: The Real Case for Currency Union Andrew K. Rose and Eric van Wincoop*

Trade-Weighted Exchange Rate Indices: Explaining Industrial Production

New Estimates of the Fraction of People Who Consume Current Income

A Panel Data Analysis of Corporate Attributes and Stock Prices for Indian Manufacturing Sector

An Empirical Estimation of the Degree of Price Transmission from Border to Consumer Prices in Mozambique

The geographic distribution of international currencies and RMB internationalization

Do R&D or Capital Expenditures Impact Wage Inequality? Evidence from the IT Industry in Taiwan ROC

The impact of exports on economic growth: It s the market. form

Causes of Inflation in the Iranian Economy

TEMPORAL CAUSAL RELATIONSHIP BETWEEN STOCK MARKET CAPITALIZATION, TRADE OPENNESS AND REAL GDP: EVIDENCE FROM THAILAND

Economics and Finance Review Vol. 1(3) pp , May, 2011 ISSN: Available online at

INVENTORY INVESTMENT AND LOAN SUPPLY SHOCKS. EVIDENCE FROM UKRAINE. Dzhumyga Maryna. MA in Economics. Kyiv School of Economics

STOCK MARKET CORRELATIONS AND CROSS-EQUITY HOLDINGS RADOSLAV I. ILIEV

Stress-testing testing in the early warning system of financial crises: application to stability analysis of Russian banking sector

An Analysis of the Telecommunications Business in China by Linear Regression

How To Find Out If A Firm Is Profitable

Branding and Search Engine Marketing

Dynamic Panel Data estimators

Working Paper Series. Taking gravity online: the role of virtual proximity in international finance. No 1879 / January 2016

Analysis of China Motor Vehicle Insurance Business Trends

How To Determine If Technical Currency Trading Is Profitable For Individual Currency Traders

Unionization and the Wage Structure of Nursing

The Legal Origins of Corporate Social Responsibility

Education and Wage Differential by Race: Convergence or Divergence? *

DOES IT PAY TO HAVE FAT TAILS? EXAMINING KURTOSIS AND THE CROSS-SECTION OF STOCK RETURNS

IMPACTS OF REGIONAL TRADE AGREEMENTS (RTAS) ON FOOD SECURITY: A CASE OF ASEAN FREE TRADE AGREEMENT

THE IMPACT OF MACROECONOMIC FACTORS ON NON-PERFORMING LOANS IN THE REPUBLIC OF MOLDOVA

From the help desk: Bootstrapped standard errors

How Are Secondary Vocational Schools in China Measuring up to Government Benchmarks?

Yao Zheng University of New Orleans. Eric Osmer University of New Orleans

The Emergence of Private For-Profit Medical Facilities and their Roles in Medical Expenditures in China

Supply Chain Quality Management Based on Information Asymmetry

Import Prices and Inflation

Debt overhang and economic growth the Asian and the Latin American experiences

The Impact of Microfinance on the Development of Small and. Medium Enterprises: The Case of Taizhou, China

How would Capital Account Liberalization Affect China s Capital Flows and the Renminbi Real Exchange Rates?

Determinants of Capital Structure in Developing Countries

Does the internet generate economic growth, international trade, or both? Huub Meijers

2013 MBA Jump Start Program. Statistics Module Part 3

Exploring spatial decay effect in mass media and social media: a case study of China

On the Determinants of Household Debt Maturity Choice

The Household Level Impact of Public Health Insurance. Evidence from the Urban Resident Basic Medical Insurance in China. University of Michigan

An Empirical Study of Influential Factors of Debt Financing

Practical. I conometrics. data collection, analysis, and application. Christiana E. Hilmer. Michael J. Hilmer San Diego State University

option: Evidence from a bank-based economy

Forecasting Chinese Economy for the Years

A Quantitative Analysis of Chinese Electronic Information Manufacturers International Marketing Performances Under the Influence of R&D Investment

Explaining exchange rate risk in world stock markets: A panel approach

Determinants of Stock Market Performance in Pakistan

An empirical study of factor analysis on M & A performance of listed companies of Chinese pharmaceutical industry

Online appendix to paper Downside Market Risk of Carry Trades

A Wealth Tax on the Rich to Bring Down Public Debt? Revenue and Distributional Effects of a Capital Levy in Germany

Analysis of Fire Statistics of China: Fire Frequency and Fatalities in Fires

Does the Choice of Introductory Corporate Finance Textbook Affect Student Performance?

Aien et al Int J Adv Stu Hum Soci Scie. 2013; 1(6):

An Econometric Assessment of Electricity Demand in the United States Using Panel Data and the Impact of Retail Competition on Prices

INTERNATIONAL GRADUATE (MA) PROGRAM IN CONTEMPORARY CHINA STUDIES

The Impact of Business Conditions on FDI Financing

Education, Market Rigidities and Growth

Conditional probability of default methodology

Insurance and the Macroeconomic Environment

( ) = ( ) = {,,, } β ( ), < 1 ( ) + ( ) = ( ) + ( )

The Effect of Mergers & Acquisitions and Greenfield FDI on Income Inequality

AN IMPROVED CREDIT SCORING METHOD FOR CHINESE COMMERCIAL BANKS

U.S. International Business Travel: Its Impact on U.S. Merchandise Exports. by Maksim Belenkiy and David Riker

Are German Tax-Revenue Forecasts Flawed?

THE RESPONSIBILITY TO SAVE AND CONTRIBUTE TO

Revisiting the border effect in Europe and Spain: New results using region-to-region intra-national and inter-national flows.

The Bankruptcy Attorneys

MULTIPLE REGRESSIONS ON SOME SELECTED MACROECONOMIC VARIABLES ON STOCK MARKET RETURNS FROM

Econometric Modelling for Revenue Projections

Impact of Mexico's Peso-Dollar Exchange Rate on Texas Metropolitan Area Retail Sales

DETERMINANTS OF CAPITAL ADEQUACY RATIO IN SELECTED BOSNIAN BANKS

A Primer on Forecasting Business Performance

European Journal of Business and Management ISSN (Paper) ISSN (Online) Vol.5, No.30, 2013

Fiscal Decentralization and Economic Growth in the United States*

Quantitative Analysis of Foreign Exchange Rates

Impact of Firm Specific Factors on the Stock Prices: A Case Study on Listed Manufacturing Companies in Colombo Stock Exchange.

Missing Data: Part 1 What to Do? Carol B. Thompson Johns Hopkins Biostatistics Center SON Brown Bag 3/20/13

Asian Economic and Financial Review DETERMINANTS OF THE AUD/USD EXCHANGE RATE AND POLICY IMPLICATIONS

DETERMINANT FACTORS OF FOREIGN DIRECT INVESTMENT FLOWS IN CENTRAL AND EASTERN EUROPEAN COUNTRIES

Micro and macroeconomic determinants of net interest margin in the Albanian banking system ( )

European Financial Market Integration and German Cross Border Portfolio Flows

An Empirical Study on the Relationship between Stock Index and the National Economy: The Case of China

FIRM SPECIFIC FACTORS THAT DETERMINE INSURANCE COMPANIES PERFORMANCE IN ETHIOPIA

Keywords: Tax policy; Economic growth; Marginal Cost of Public Funds

Uninformative Feedback and Risk Taking: Evidence from Retail Forex Trading

Impacts of health insurance on household savings across income groups in rural China

Minimum wage effects on employment and working time of Chinese workers evidence based on CHNS

Identifying the Relationship Between Trade and Exchange Rate Volatility

A Panel Data Analysis of Foreign Trade Determinants of Nepal: Gravity Model Approach

The Chinese Insurance Market: Estimating its Long-Term Growth and Size n

Online Posting of Teaching Evaluations and Grade Inflation. Talia Bar University of Connecticut. Vrinda Kadiyali Carnell University

Information Content of CSI 300 Index Futures during Extended Trading Hours: Evidence from China

The Relationships between Economic Growth and Environmental Pollution Based on Time Series Data:An Empirical Study of Zhejiang Province

The relationships between stock market capitalization rate and interest rate: Evidence from Jordan

Competition between Railway Operators and Low Cost Carriers in Long-Distance Passenger Transport

The drivers and impediments for online cross-border trade in goods in the EU

Transcription:

The effect of the Internet on regional integration: evidence from China Maoliang BU * 1. Assistant Professor School of Business, Nanjing University, Hankou Road 22, Nanjing 210093, P. R. China 2. Post doctoral researcher Courant Research Center Poverty, Equity and Growth, University of Göttingen, Wilhelm-Weber-Str. 2, D-37073 Göttingen, Germany Zhibiao LIU 1. Professor School of Business, Nanjing University, Hankou Road 22, Nanjing 210093, P. R. China 2. Dean Jiangsu Provincial Academy of Social Science, Nanjing 210013, P.R. China Sanfeng ZHANG 1. PhD and Assistant Professor, School of economics and management, Nanjing University of Information Science & Technology, Nanjing 210044, P.R. China *corresponding author, E-mail: bumaoliang@hotmail.com. The first author appreciates the research grant from China s Natural Sciences Foundation (No. 70972040 and No. 71003046) and the financial support from the Erasmus Mundus project. 1

The effect of the Internet on regional integration: evidence from China Abstract: This study investigates the effect of Internet on the regional integration in China for the period of 2001 2009. To measure regional integration, we constructed a panel data on inter-regional disintegration index based on the dataset of retail price indices of commodities by region. Regression results have shown that the Internet plays a positive and significant role in regional integration after GDP and population have been used as control variables. Keywords: Internet, Regional integration, Gravity equation, China I. Introduction The Internet has evidently influenced every aspect of the economy. However, studies on the effects of the Internet on the macroeconomic level have been relatively few in economics literature; in empirical studies, they are even fewer. Some papers have looked into the effects of Internet on economic growth [e.g., (Choi & Hoon Yi, 2009)] and trade [e.g., (Blum & Goldfarb, 2006; Choi, 2010; Freund & Weinhold, 2004)]. However, there are no studies on how the Internet affects regional economic integration within one country. Thus, this study attempts to contribute in this space by focusing on one country and using sub-national data. One of its significant advantages is that it avoids the difficulty of controlling institutional differences across countries in international studies (Bacchetta, Rose, & Van Wincoop, 2001; Davis, Weinstein, Bradford, & Shimpo, 1997). China has been chosen as the research target, as it is undergoing a lengthy transition process of into market economy. Additionally, China is very large and its domestic market is highly fragmented. According to (Poncet, 2005), the border effect (i.e., reflecting the extent of market disintegration) of China is close to that of European Union and Canada-US border. In recent years, the regional integration of China has attracted numerous studies [for reviews, see (Young, 2000) and (Naughton, 1999)] and substantial efforts have been devoted to this knowledge field. However, the effect of the Internet has been largely ignored. The succeeding segments are as follows. In Section 2, we derive a modified gravity equation incorporating the Internet variable. In Section 3, we perform several estimations for the gravity equation. Finally, Section 4 concludes the paper. II. Model and data Following (Choi, 2010), we have examined the effect of the Internet on regional integration. A modified gravity equation has been used for this purpose. The Internet 2

variable is included in the right side of the equation. Other independent variables include GDP and population; these control for the income effects and region size, respectively. The dependent variable is regional integration. Notably, finding a credible measure of integration is the most difficult process in conducting empirical studies. We constructed the panel data of the inter-regional disintegration index based on the method of (Parsley & Wei, 1996, 2001; Lu & Chen, 2009), which has been founded theoretically on the iceberg model (Samuelson, 1954). The primary data are the retail price indices of commodities by region obtained from the China Statistical Yearbook across various years. Disintegration = β + β ln Internet + β ln GDP + β ln Population + η + υ + ε it 0 1 it 2 it 3 it i t it (1( where subscript i represents a province and subscript t represents year t. υ individual (province) effect and t ε is the time effect. it ηi is the is distributed independently and identically among provinces and years. The logarithm is taken in all independent variables. Excluding the dependent variable, the rest of the data source is from the China Economic Information Network (CEIN). Statistics for the variables are listed in Table 1. [Insert Table 1 about here.] III. Empirical results [Insert Table 2 about here.] Table 2 lists the regression results. We estimated Eq. (1) by using various estimation methods: (1) pooled ordinary least squares (OLS), (2) fixed effects, (3) random effects, (4) panels corrected standard errors (PCSEs), and (5) generalized method of moments (GMM) estimation. According to the benchmark pooled OLS regression [see column (1) in Table 2], the estimated coefficient of Internet is -3.204 and significant at the 1% level as expected. This means that when the Internet user ratio increases by 1% point, the disintegration index tended to decrease by 3.204% points. The estimated coefficient of GDP is 3.175 and significant at the 1% level. This means that when the income level increases, the regional disintegration index tends to decrease as well. The estimated coefficient of the population is -4.847 and significant at the 1% level. When the population increases by 1% point, the regional disintegration index tends to decrease by 4.847% points. Given that panel data has been used in our regressions, we re-estimated Eq. (1) by using panel data regression methods such as fixed effects, random effects, and panels corrected standard errors (PCSEs) [see columns (2), (3), and (4) in Table 2, 3

respectively). The estimated coefficients of Internet are from -4.559 to -3.204 and significant at the 1% level in columns (2) and (3) and at the 5% level in column (4). This means that when the Internet user ratio increases by 1% point, the regional disintegration index tend to decrease by between 3.204 and 4.559% points. The estimated coefficients of GDP are very similar to pooled OLS estimation in column (1). The estimated coefficients of population are negative and significant at the 5% level in column (2) and at the 1% level in columns (3) and (4). Inasmuch as explanatory variables like GDP and population can be influenced by regional integration, we performed GMM estimation to take into account any endogeneity of the explanatory variables [see column (5) in Table 1]. The coefficient of Internet is -4.625 and significant at the 1% level. The coefficient of GDP is 4.530 and significant at the 1% level. The coefficient of population is -6.186 and significant at the 1% level. Sargan test of overid is 15.18 with a p-value of 0.438, suggesting that the model is well specified. In summary, the Internet has a negative and significant relationship across the regional disintegration indices in all the regressions. Thus, it can be inferred that the effect of the Internet on regional integration is positive and significant. Furthermore, the regression coefficients of GDP and population are mostly consistent with the standard results in literature. GDP has a positive effect on regional integration while population has a negative impact on regional integration. This suggests that the result is quite robust against different estimation methods. IV. Conclusion The Internet may reduce the communication costs across different regions. Therefore, the increase in the use of the Internet in a country is hypothesized as having a positive effect on regional integration. Using panel data on Chinese provinces from 2001 to 2009, we found evidence that the Internet plays a positive and significant role in regional integration after GDP and population are used as control variables in the estimation equation. References Bacchetta, P., Rose, A., Van Wincoop, E., 2001. Intranational economics and international economics. Journal of International Economics 55, 1. Blum, B.S., Goldfarb, A., 2006. Does the internet defy the law of gravity? Journal of International Economics 70, 384-405. Choi, C., 2010. The effect of the Internet on service trade. Economics Letters 109, 102-104. Choi, C., Hoon Yi, M., 2009. The effect of the Internet on economic growth: Evidence from 4

cross-country panel data. Economics Letters 105, 39-41. Davis, D., Weinstein, D., Bradford, S., Shimpo, K., 1997. Using international and Japanese regional data to determine when the factor abundance theory of trade works. The American Economic Review 87, 421-446. Freund, C.L., Weinhold, D., 2004. The effect of the Internet on international trade. Journal of International Economics 62, 171-189. Ming, L. and C. Zhao (2009). "Fragmented Growth : Why Economic Opening May Worsen Domestic Market Segmentation?" Jingji Yanjiu (in Chinese) 3. Naughton, B., 1999. How much can Regional Integration do to Unify China's Market. University of California at San Diego Mimeo. Parsley, D.C., Wei, S.-J., 1996. Convergence to the Law of One Price Without Trade Barriers or Currency Fluctuations Quarterly Journal of Economics 111, 1211-1236. Parsley, D.C., Wei, S.-J., 2001. Limiting Currency Volatility to Stimulate Goods Market Integration: A Price Based Approach. NBER Working Paper No. W8468. Poncet, 2005. A Fragmented China: Measure and Determinants of Chinese Domestic Market Disintegration. Review of International Economics. Samuelson, P., 1954. Theoretical Note on Trade Problem. Review of Economics and Statistics 46, 145-164. Young, A., 2000. The Razor'S Edge: Distortions And Incremental Reform In The People'S Republic Of China. Quarterly Journal of Economics. 115, 1091-1135. 5

Table 1. Statistics Variable Obs Mean Std. Dev. Min Max Disintegration 279 4.319713 5.432589 1.112404 85.36004 Internet (users per 1000 people) GDP (current 100 million RMB) 279 126.2143 118.5819 4.644485 628.4901 279 4164.692 2644.244 263 9717 Population (10 thousand) 279 6975.996 6826.657 139.16 39482.56 Table 2. Regression Results (1) (2) (3) (4) (5) a Pooled OLS Fixed effect Random effect PCSE Panel GMM Internet -3.204*** -4.559*** -3.459*** -3.364** -4.625*** (1.022) (1.340) (1.084) (1.560) (-1.265) Lnpop -4.847*** -21.89** -5.148*** -5.107*** -6.186*** (1.171) (9.522) (1.293) (1.936) (-1.317) Lngdp 3.175*** 6.642 3.470*** 3.256** 4.530*** (1.143) (5.319) (1.252) (1.530) (-1.313) Constant 32.54*** 146.6 33.75*** 34.905*** 37.97*** (5.478) (92.60) (6.011) (12.971) (-4.561) R 2 0.271 0.250 0.239 0.271 Observations 279 279 279 279 279 ***, **, and * indicate significance at the 1%, 5%, and 10% levels, respectively. Standard errors are in parentheses. a Instrumental variables include (internet) t-1, (lnpop) t-1, and (lngdp) t-1. Arellano-Bond test for AR(1) in first differences: z =-1.93, Pr > z =0.053. Arellano-Bond test for AR(2) in first differences: z = 0.14, Pr > z=0.889. Sargan test of overid. restrictions: chi2(15)=15.18, Prob> chi2=0.438. 6