Blessing or curse? The effect of broadband Internet on China’s inter-city income inequality

The information and communication technology, represented by the broadband Internet, has made a profound impact on Chinese urban labor market. However, the effect of broadband Internet on inter-city inequality is less well documented, especially concerning income inequality. This study aims to identify the impact of broadband Internet on income distribution between cities in China and further explore its underlying mechanisms. Based on nationally representative subsamples from the census in 2005, 2010 and 2015, we find broadband Internet is a blessing factor in explaining the inter-city income gap. The conclusion remains stable after overcoming the endogeneity issues with instrumental variables. Interestingly, broadband Internet appears to provide digital dividend for the low-income brackets. Notably, broadband Internet seems to be skill-biased, since it favors highly educated and professional workers, as well as China’s eastern and central regions. Market potential and manufacturing agglomeration are two mechanisms underlying the reducing effects of broadband Internet. These findings provide insights that are valuable for designing policies and strategies aimed at ensuring fairness and efficiency in broadband Internet development.