Open Access Journal Article

Ways to improve cross-regional resource allocation: Does the development of digitalization matter?

by Haitao Wu a orcid ,  Yu Hao a,* orcid ,  Chuanzhen Geng b orcid ,  Weiheng Sun c orcid ,  Youcheng Zhou d orcid  and  Feiling Lu e orcid
a
School of Management and Economics, Beijing Institute of Technology, Beijing, China
b
Rotman Business School, University of Toronto, Mississauga, Canada
c
Business School, Imperial College London, London, UK
d
Department of Accounting, Southampton Business School, University of Southampton, Southampton, UK
e
College of Letters & Science-Economics Dept, University of Wisconsin-Madison, Madison, USA
*
Author to whom correspondence should be addressed.
JEA  2023 2(4):7; https://doi.org/10.58567/jea02040001
Received: 1 April 2023 / Accepted: 3 June 2023 / Published Online: 9 June 2023
View Full-Text
Download PDF

Abstract

The long-term extensive economic development has caused China's resource and environmental problems, especially the resource misallocation. The way China prioritises its limited resources is being significantly impacted by the rise of the digital economy and the interconnectedness of new technologies and the real economy. This paper quantitatively examines the linear and nonlinear impacts and mechanisms of digital development represented by internet development. With a series of empirical tests, we found that the internet development has significantly inhibited the resources misallocation, and the conclusion is still valid in the robustness test with internet popularization and internet infrastructure as the core explanatory variables. In addition to the marketization, internet development can further inhibit resource misallocation by promoting financial development, openness, urbanization and industrial structure. The findings of threshold regression suggest that the inhibitory effect of internet growth on resource misallocation becomes more visible as the degree of financial development and industrial structure increases; with the higher degree of urbanisation and marketization, although the internet development has always played an inhibitory role on resource mismatch, the inhibitory effect first increases and then decreases; with the improvement of openness, the hindering impact of internet growth on resource mismatch becomes more visible as the degree of financial development and industrial structure increases.

Keywords: Internet development, Resource misallocation, IV estimation, DID, China;
Copyright: © 2023 by Wu, Hao, Geng, Sun, Zhou and Lu. This is an open-access article distributed under the terms of the Creative Commons Attribution License (CC BY) (Creative Commons Attribution 4.0 International License). The use, distribution or reproduction in other forums is permitted, provided the original author(s) or licensor are credited and that the original publication in this journal is cited, in accordance with accepted academic practice. No use, distribution or reproduction is permitted which does not comply with these terms.
Show Figures

Share and Cite

ACS Style
Wu, H.; Hao, Y.; Geng, C.; Sun, W.; Zhou, Y.; Lu, F. Ways to improve cross-regional resource allocation: Does the development of digitalization matter?. Journal of Economic Analysis, 2023, 2, 7. https://doi.org/10.58567/jea02040001
AMA Style
Wu H, Hao Y, Geng C, Sun W, Zhou Y, Lu F. Ways to improve cross-regional resource allocation: Does the development of digitalization matter?. Journal of Economic Analysis; 2023, 2(4):7. https://doi.org/10.58567/jea02040001
Chicago/Turabian Style
Wu, Haitao; Hao, Yu; Geng, Chuanzhen; Sun, Weiheng; Zhou, Youcheng; Lu, Feiling 2023. "Ways to improve cross-regional resource allocation: Does the development of digitalization matter?" Journal of Economic Analysis 2, no.4:7. https://doi.org/10.58567/jea02040001
APA style
Wu, H., Hao, Y., Geng, C., Sun, W., Zhou, Y., & Lu, F. (2023). Ways to improve cross-regional resource allocation: Does the development of digitalization matter?. Journal of Economic Analysis, 2(4), 7. https://doi.org/10.58567/jea02040001

Article Metrics

Article Access Statistics

References

  1. Acemoglu, D., Johnson, S., & Robinson, J. A. (2002). Reversal of Fortune: Geography and Institutions in the Making of the Modern World Income Distribution. Quarterly Journal of Economics, 117(4), 1231-1294. https://doi.org/10.1162/003355302320935025
  2. Acharya, R. C. (2016). ICT use and TFP growth: intangible capital or productive externalities?. Oxford Economic Papers, 68(1), 16-39. https://doi.org/10.1093/oep/gpv058
  3. Adamopoulos, T., & Restuccia, D. (2014). The Size Distribution of Farms and International Productivity Differences. The American Economic Review, 104(6), 1667-1697. https://doi.org/10.1257/aer.104.6.1667
  4. Anderson, J. E., & Van Wincoop, E. (2004). Trade costs. Journal of Economic literature, 42(3), 691-751. https://doi.org/10.1257/0022051042177649
  5. Bandyopadhyay, D., King, I., & Tang, X. (2019). Human capital misallocation, redistributive policies, and TFP. Journal of Macroeconomics, 60, 309-324. https://doi.org/10.1016/j.jmacro.2019.02.005
  6. Banerjee, A. V., & Duflo, E. (2005). Growth theory through the lens of development economics. Handbook of Economic Growth, 1(05), 473-552. https://doi.org/10.1016/S1574-0684(05)01007-5
  7. Banerjee, A., & Moll, B. (2010). Why Does Misallocation Persist. American Economic Journal: Macroeconomics, 2(1), 189-206. https://doi.org/10.1257/mac.2.1.189
  8. Bartelsman, E., Haltiwanger, J., & Scarpetta, S. (2013). Cross-country differences in productivity: The role of allocation and selection. American economic review, 103(1), 305-34. https://doi.org/10.1257/aer.103.1.305
  9. Benhima, K. (2013). Financial integration, capital misallocation and global imbalances. Journal of International Money and Finance, 32, 324-340. https://doi.org/10.1016/j.jimonfin.2012.04.009
  10. Bian, Y., Song, K., & Bai, J. (2019). Market segmentation, resource misallocation and environmental pollution. Journal of Cleaner Production, 228, 376-387. https://doi.org/10.1016/j.jclepro.2019.04.286
  11. Bogoviz, A. V., Lobova, S. V., Ragulina, Y. V., Chernitsova, K. A., & Shkodinsky, S. V. (2019). Internet Tools for Development of Knowledge Economy: Essence, Tendencies, and Perspectives. Perspectives on the Use of New Information and Communication Technology (ICT) in the Modern Economy. https://doi.org/10.1007/978-3-319-90835-9_5
  12. Bower, R. S., & Scheidell, J. M. (1970). Operationalism in finance and economics. Journal of Financial and Quantitative Analysis, 469-495. https://doi.org/10.2307/2330042
  13. Brandt, L., Tombe, T., & Zhu, X. (2013). Factor market distortions across time, space and sectors in China. Review of Economic Dynamics, 16(1), 39-58. https://doi.org/10.1016/j.red.2012.10.002
  14. Burstein, A., & Mongenaranjo, A. (2009). Foreign Know-How, Firm Control, and the Income of Developing Countries. Quarterly Journal of Economics, 124(1), 149-195. https://doi.org/10.1162/qjec.2009.124.1.149
  15. Caggese, A., & Perez-Orive, A. (2017). Capital misallocation and secular stagnation. Finance and Economics Discussion Series, 9.
  16. Calligaris, S. (2015). Misallocation and TFP in Italy: Evidence from Firm-Level Data. Labour, 29(4), 367-393. https://doi.org/10.1111/labr.12067
  17. Castiglione, C. (2012). Technical efficiency and ICT investment in Italian manufacturing firms. Applied Economics, 44(14), 1749-1763. https://doi.org/10.1080/00036846.2011.554374
  18. Chen, S., & Lin, B. (2019). Dual-track interest rates and capital misallocation. China Economic Review, 57, 101338. https://doi.org/10.1080/00036846.2011.554374
  19. Choi, C., Rhee, D. E., & Oh, Y. (2014). Information and capital flows revisited: The Internet as a determinant of transactions in financial assets. Economic Modelling, 40, 191-198. https://doi.org/10.1016/j.econmod.2014.03.027
  20. Collard-Wexler, A., Asker, J., & De Loecker, J. (2011). Productivity volatility and the misallocation of resources in developing economies (No. w17175). National Bureau of Economic Research.
  21. Czernich, N., Falck, O., Kretschmer, T., & Woessmann, L. (2011). Broadband infrastructure and economic growth. The Economic Journal, 121(552), 505-532. https://doi.org/10.1111/j.1468-0297.2011.02420.x
  22. David, J. M., & Venkateswaran, V. (2019). The Sources of Capital Misallocation. The American Economic Review, 109(7), 2531-2567. https://doi.org/10.1257/aer.20180336
  23. Edquist, H., & Henrekson, M. (2017). Do R&D and ICT affect TFP growth differently?. Telecommunications Policy, 41(2), 106-119. https://doi.org/10.1016/j.telpol.2016.11.010
  24. Ek, C., & Wu, G. L. (2018). Investment-cash flow sensitivities and capital misallocation. Journal of Development Economics, 133, 220-230. https://doi.org/10.1016/j.jdeveco.2018.02.003
  25. Elliott, R. J., Sun, P., & Zhu, T. (2017). The direct and indirect effect of urbanization on energy intensity: A province-level study for China. Energy, 123, 677-692. https://doi.org/10.1016/j.energy.2017.01.143
  26. Forman, C., Goldfarb, A., & Greenstein, S. (2005). How did location affect adoption of the commercial internet? global village vs. urban leadership. Journal of Urban Economics, 58(3), 389-420. https://doi.org/10.1016/j.jue.2005.05.004
  27. Freund, C. L., & Weinhold, D. (2004). The effect of the Internet on international trade. Journal of international economics, 62(1), 171-189. https://doi.org/10.1016/S0022-1996(03)00059-X
  28. Furman, J. L., Porter, M. E., & Stern, S. (2002). The determinants of national innovative capacity. Research policy, 31(6), 899-933. https://doi.org/10.1016/S0048-7333(01)00152-4
  29. Galindo, A., Schiantarelli, F., & Weiss, A. (2002). Does Financial Liberalization Improve the Allocation of Investment? Micro Evidence from Developing Countries. Journal of Development Economics, 83(2), 562-587. https://doi.org/10.1016/j.jdeveco.2005.09.008
  30. Goldfarb, A., & Tucker, C. E. (2017). Standardization and the effectiveness of online advertising. Operations Research, 57(4), 383-385. https://doi.org/10.1287/mnsc.2014.2016
  31. Greenwood, J., Sanchez, J. M., & Wang, C. (2013). Quantifying the impact of financial development on economic development. Review of Economic Dynamics, 16(1), 194-215. https://doi.org/10.1016/j.red.2012.07.003
  32. Grossman, G. M., & Rossi-Hansberg, E. (2008). Trading tasks: A simple theory of offshoring. American Economic Review, 98(5), 1978-97. https://doi.org/10.1257/aer.98.5.1978
  33. Hansen, R., & Sia, S. K. (2015). Hummel's Digital Transformation Toward Omnichannel Retailing: Key Lessons Learned. MIS Quarterly Executive, 14(2).
  34. Hao, Y., & Wu, H. (2020). The Role of Internet Development on Energy Intensity in China: Evidence From a Spatial Econometric Analysis. Asian Economics Letters, 1(1), 17194. https://doi.org/10.46557/001c.17194
  35. Hao, Y., Gai, Z., & Wu, H.. (2020). How do resource misallocation and government corruption affect green total factor energy efficiency? evidence from china. Energy Policy, 143, 111562. https://doi.org/10.1016/j.enpol.2020.111562
  36. Hirakata, N., & Sunakawa, T. (2019). Financial frictions, capital misallocation and structural change. Journal of Macroeconomics, 61, 103127. https://doi.org/10.1016/j.jmacro.2019.103127
  37. Hopenhayn, H. A., & Rogerson, R. (1993). Job Turnover and Policy Evaluation: A General Equilibrium Analysis. Journal of Political Economy, 101(5), 915-938. https://doi.org/10.1086/261909
  38. Hsieh, C., & Klenow, P. J. (2009). Misallocation and Manufacturing TFP in China and India. Quarterly Journal of Economics, 124(4), 1403-1448. https://doi.org/10.1162/qjec.2009.124.4.1403
  39. Ivus, O., & Boland, M. (2015). The Employment and Wage Impact of Broadband Deployment in Canada. Canadian Journal of Economics, 48(5), 1803-1830. https://doi.org/10.1111/caje.12180
  40. Jones, C. I. (2011). Misallocation, Economic Growth, and Input-Output Economics. National Bureau of Economic Research, 419-456.
  41. Jovanovic, B. (2014). Misallocation and Growth. The American Economic Review, 104(4), 1149-1171. https://doi.org/10.1257/aer.104.4.1149
  42. Kaymak, B., & Schott, I. (2019). Loss-offset provisions in the corporate tax code and misallocation of capital. Journal of Monetary Economics, 105, 1-20. https://doi.org/10.1016/j.jmoneco.2019.04.011
  43. Kehrig, M., & Vincent, N. (2017). Do firms mitigate or magnify capital misallocation? evidence from plant-level data. US Census Bureau Center for Economic Studies Paper No. CES-WP-17-14.
  44. Koutroumpis, P. (2009). The economic impact of broadband on growth: A simultaneous approach. Telecommunications policy, 33(9), 471-485. https://doi.org/10.1016/j.telpol.2009.07.004
  45. Levin, J. D. (2011). The economics of internet markets (No. w16852). National Bureau of Economic Research.
  46. Liao, G., Yao, D., & Hu, Z. (2020). The spatial effect of the efficiency of regional financial resource allocation from the perspective of internet finance: evidence from Chinese provinces. Emerging Markets Finance and Trade, 56(6), 1211-1223. https://doi.org/10.1080/1540496X.2018.1564658
  47. Marconi, D., & Upper, C. (2017). Capital misallocation and financial development: a sector-level analysis. Bank of Italy Temi di Discussione (Working Paper) No, 1143.
  48. Meijers, H. (2014). Does the internet generate economic growth, international trade, or both?. International Economics & Economic Policy, 11(1-2), 137-163. https://doi.org/10.1007/s10368-013-0251-x
  49. Miao, J., & Wang, P. (2014). Sectoral bubbles, misallocation, and endogenous growth. Journal of Mathematical Economics, 53, 153-163. https://doi.org/10.1016/j.jmateco.2013.12.003
  50. Misch, F., & Saborowski, C. (2018). Resource misallocation and productivity: Evidence from mexico. International Monetary Fund.
  51. Moll, B. (2014). Productivity Losses from Financial Frictions: Can Self-Financing Undo Capital Misallocation?. The American Economic Review, 104(10), 3186-3221. https://doi.org/10.1257/aer.104.10.3186
  52. Munshi, K., & Rosenzweig, M. R. (2016). Networks and Misallocation: Insurance, Migration, and the Rural-Urban Wage Gap. The American Economic Review, 106(1), 46-98. https://doi.org/10.1257/aer.20131365
  53. Nunn, N., & Qian, N. (2014). US food aid and civil conflict. American Economic Review, 104(6), 1630-66. https://doi.org/10.1257/aer.104.6.1630
  54. Paunov, C., & Rollo, V. (2016). Has the internet fostered inclusive innovation in the developing world?. World Development, 78, 587-609. https://doi.org/10.1016/j.worlddev.2015.10.029
  55. Piao, Z., Jia, J., Shen, F., & Chen, R. (2016). Research of Microcosmic Affection Factors on Capital Misallocation: A Case of Chinese Listed Companies. Mathematical Problems in Engineering, 2016, Article ID: 8921418. https://doi.org/10.1155/2016/8921418
  56. Restuccia, D., & Rogerson, R. (2013). Misallocation and productivity. Review of Economic Dynamics, 16(1), 1-10. https://doi.org/10.1016/j.red.2012.11.003
  57. Roller, L. H., & Waverman, L. (2001). Telecommunications infrastructure and economic development: A simultaneous approach. American economic review, 91(4), 909-923. https://doi.org/10.1257/aer.91.4.909
  58. Ryzhenkov, M. (2016). Resource misallocation and manufacturing productivity: The case of Ukraine. Journal of Comparative Economics, 44(1), 41-55. https://doi.org/10.1016/j.jce.2015.12.003
  59. Salahuddin, M., & Gow, J. (2016). The effects of internet usage, financial development and trade openness on economic growth in south Africa: a time series analysis. Telematics and Informatics, 33(4), 1141-1154. https://doi.org/10.1016/j.tele.2015.11.006
  60. Song, Z., & Wu, G. L. (2015). Identifying capital misallocation. Work. Pap., Univ. Chicago, Chicago.
  61. Spiezia, V. (2011). Are ICT users more innovative: an analysis of ICT-enabled innovation in OECD firms. OECD Journal: Economic Studies, 2011(1), 1-21. https://doi.org/10.1787/19952856
  62. Wei, C., & Li, C. Z. (2017). Resource misallocation in Chinese manufacturing enterprises: evidence from firm-level data. Journal of cleaner production, 142, 837-845. https://doi.org/10.1016/j.jclepro.2016.04.083
  63. Wu, G. L. (2018). Capital misallocation in China: Financial frictions or policy distortions?. Journal of Development Economics, 130, 203-223. https://doi.org/10.1016/j.jdeveco.2017.10.014