Can Internet construction promote enterprise upgrading?

Abstract

This paper investigates the impact of Internet infrastructure construction on enterprise transformation and upgrading and the underlying mechanisms using a progressive double difference model based on a quasi-natural experiment of the Chinese government's "broadband China" policy by matching A-share listed companies and city panel data from 2008–2019 in Shanghai and Shenzhen. The conclusions show that the "broadband China" policy can significantly promote the transformation and upgrading of enterprises in pilot cities. However, its effect shows a diminishing marginal contribution, and the policy is more effective for traditional manufacturing industries during the implementation period. Enhancing human capital and reducing internal transaction costs are two important channels for Internet infrastructure construction to help enterprises transform and upgrade. Combined with the life cycle theory, we find that the "broadband China" policy has the most significant impact on changing and upgrading enterprises in the growth and maturity stages, especially those in the manufacturing industry, but not those in the maturity and decline stages of the service industry. Finally, a series of robustness tests using Monte Carlo simulation, entropy balance method, and instrumental variables method, excluding other factors, show that the findings are still robust.