Can digital infrastructure enhance economic efficiency? Evidence from China

Digital development provides a new impetus for the improvement of economic efficiency. Project Broadband China was a program implemented by the Chinese government that provided additional funding for a set of cities to build digital infrastructure. Based on the panel data of 283 cities in China from 2010 to 2018, we take the project as a quasi-nature experiment to examine whether and how digital infrastructure influences regional economic efficiency. Our results of multi-period difference-in-difference analyses suggest that cities that obtained the program support have higher total factor productivity, an implicit proxy for economic efficiency. We further find that this effect can be achieved through the upgrading of regional industrial structure (the transformation from manufacturing industry to tertiary industry). Heterogeneity analyses further suggest that the efficiency effect of Project Broadband China varies across different cities in terms of location, scale, administrative and urbanization levels. Our findings contribute to digitalization research and the literature on economic efficiency, as well as highlight the importance of digital infrastructure construction for improving economic efficiency. Our study also provides valuable practical implications for policymakers (i.e., expanding the scope of Project Broadband China) seeking to improve high-quality economic development through digital infrastructure construction.