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Internetization and the markups of export firms: Evidence from China

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  • Shen, Guobing
  • Shen, Binchao
  • Wu, Ruochen
  • Yuan, Zhengyu

Abstract

Can internetization help Chinese exporting firms escape the “low markup trap”? We contend that it does, as internetization improves firms' capabilities and efficiencies in gathering and communicating information. We incorporate information costs and firm innovation choice into a heterogeneous firm model to test this hypothesis. The causality between firm-level internetization and markups is identified with a new instrumental variable designed to capture exogenous shocks to firm-level Internet exposure. After analyzing various internetization strategies, including social media, emails, and homepages, our results indicate that internetization directly increases the markups of Chinese exporting firms. In addition, with the enhanced information availability, internetization stimulates their innovation activities. Thus, we identify innovation as one channel, among others, through which internetization indirectly boosts the markups of China's export firms.

Suggested Citation

  • Shen, Guobing & Shen, Binchao & Wu, Ruochen & Yuan, Zhengyu, 2023. "Internetization and the markups of export firms: Evidence from China," Economic Modelling, Elsevier, vol. 120(C).
    • Handle: RePEc:eee:ecmode:v:120:y:2023:i:c:s0264999322004217
    DOI: 10.1016/j.econmod.2022.106184
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    More about this item

    Keywords

    Internetization; Social media; Firm innovation; Export; Markups;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • C26 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Instrumental Variables (IV) Estimation

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