The welfare effects of digital infrastructure: Micro-level evidence from China

Abstract

Over the past 40 years of reform and opening-up, China has achieved remarkable progress in rural infrastructure development. Although some empirical studies have demonstrated a positive relationship between the provision of digital infrastructure and increases in agricultural output and farmer income in various developing countries, research exploring the impact of digital infrastructure on rural households’ welfare is rare. This gap represents a significant issue for policymakers and academic researchers in developing countries today. By matching micro-survey data with county-level digital infrastructure investment data, this paper empirically examines the effects and mechanisms of digital infrastructure on the welfare of rural households using ordered probit and mediation models. We found that digital infrastructure has a significant impact on rural households’ overall welfare levels. Mechanism testing revealed that digital infrastructure operates through at least three distinct pathways, positively affecting both the economic and non-economic welfare of rural households. Additionally, the level of human capital and regional economic development exhibit notable heterogeneous effects on the impact of digital infrastructure. The validity of the results was demonstrated through instrumental variable regression and a series of robustness tests. The reason behind this result lies in the fact that the improvement of digital infrastructure in rural areas enhances households’ ability to access resources, develop skills, and engage in decision-making processes. This objectively improves their living standards and meets their needs. The empirical findings of this study have important policy implications for strengthening rural digital infrastructure, further enhancing rural households’ digital skills, and ultimately improving their overall welfare.