DOES THE DIGITAL ECONOMY INCREASE RURAL HOUSEHOLD INCOME? AN EMPIRICAL STUDY FROM CHINA

Abstract

In the era of rapid technological advancement, the digital economy has emerged as a crucial catalyst for socioeconomic transformation. This study comprehensively investigates the impact of the digital economy on rural household income in China, utilizing nationally representative microdata from the 2018 China Family Panel Studies (CFPS). To ensure reliability, we rigorously address potential endogeneity issues through advanced econometric techniques and conduct robustness checks. Baseline empirical results robustly demonstrate that the digital economy significantly increases rural household income. Mechanism analysis reveals that this positive effect is primarily driven by two pathways: facilitating the transition of the rural labor force into non-agricultural employment and substantially enhancing households’ entrepreneurial capabilities. Furthermore, a detailed heterogeneity analysis uncovers several nuanced patterns. First, a notable regional disparity exists; the income-enhancing effects are significantly stronger in the economically advanced eastern regions compared to central and western areas. Second, social capital exhibits a distinctive U-shaped moderating effect, meaning the digital economy’s impact is most pronounced at both extremely high and extremely low levels of social capital. Third, regarding income structure, the digital economy disproportionately benefits non-agricultural income rather than traditional agricultural income. Finally, terrain effects play a critical role; the positive impact is more evident in non-plain regions, which typically suffer from geographical disadvantages and information asymmetry. Ultimately, these findings provide compelling empirical evidence elucidating how the digital economy drives rural income growth, offering valuable insights and targeted policy recommendations for bridging the digital divide in China and other developing countries. Existing literature highlights that the relationship between broadband access and labor market outcomes has been a focal point for researchers and policymakers.