The Effect of the Internet on China's Economic Growth: Evidence from Provincial Panel Data

The goal of this paper is to examine whether internet will stimulate economic growth at the country level. This paper examines the relationship between internet and China's economic growth by using the panel data of 31 provinces on internet user ratio and real GDP per capita from 2003 to 2011. Three steps are followed in the model process. In the first step, this paper investigates the integrational properties of the data and finds them to be integrated of order one. In the second step, using seven different panel cointegration tests, this paper finds enough evidence for cointegration among the two variables. In the third step, this paper estimates the equation using the data of 2003-2011, 2003-2006 and 2007-2011 respectively. This paper finds that the internet plays a positive role in China's economic growth and the effect of internet on China's economic growth is sensitive to model specification.10% increases in internet user ratio raise annual real GDP per capita growth by 1.38% in the long run, 0.85% from 2003 to 2006 and 1.80% after 2007 when using time and individual fixed effects model.