Government-Supported E-Commerce Infrastructure and Entrepreneurship in Underdeveloped Regions

We study the impact of government-supported e-commerce infrastructure on entrepreneurship using an exogenous policy shock in China. Using a staggered difference-in-differences method and a novel administrative dataset during a period from 2011 to 2017, we find that treated counties saw a rise of 16% and 15% in newly registered firms and the initial number of employees in these firms. The impact is predominantly driven by an increase in the number of new firms with four or fewer employees, while the number of firms with a larger employee base remains unchanged. Furthermore, our research highlights that e-commerce infrastructure benefits both traditional and knowledge-intensive sectors because the development of e-commerce demands complementary information and research services. However, it may crowd out entrepreneurship in the wholesale and retail sectors, possibly due to easier online shopping options for rural residents. Lastly, we discover that e-commerce infrastructure is more effective in regions with limited fiscal capacity and fewer financial resources, and operates independently of capital investment. Our findings offer important implications for policymakers and managers. Governments with limited fiscal resources can prioritize e-commerce infrastructure development, and firms, especially small businesses, can gain a competitive advantage by using such infrastructure in underdeveloped regions