Internet diffusion in China: A dynamic panel data analysis

This paper investigates the key factors influencing the rate of Internet penetration in China. Given the significant differences in Internet penetration rates across different regions in China, panel data for 31 Chinese provinces over the period 2003–2009 are analyzed in a dynamic modelling framework to shed light on the main factors influencing the Internet penetration rate in each region and obtain implications for the digital divide in Internet penetration for China. The most innovative finding is the presence of significant network effect in Internet diffusion. While income is a significant and very important determinant of Internet adoption in each region, literacy and telecommunication infrastructure are also significant determinants of Internet adoption in the less developed western region.

► We investigate the key factors influencing the rate of Internet penetration in China.
► Income is found to be an important determinant of Internet adoption.
► Strong network effect is found in Internet usage.
► Literacy and infrastructure development are important for the western region.