Digital technology, e-commerce, and economic inequality: The case of China

This paper examines economic inequality through digital facilitated e-commerce as a new perspective. Digital development is good for output production, which can attenuate regional income inequality in China. Falling search costs with e-commerce technological progress boost more online search for better price discounts. The resulting increase in spending propensities is higher in remoter, poorer, or smaller regions, so that consumption inequality declines more than income inequality as recently observed in China. This theoretical result is consistent with our empirical finding that China's ratio of income to consumption inequality rises significantly with rapid developments in its e-commerce. Additionally, this ratio is found to decrease under wider economic openness but increase with improved transportation conditions.