The phenomenon of e-commerce is almost synonymous with Amazon in the West. Consumers can go online, make a few clicks, and a pair of shoes or a book is at their doorstep, sometimes within the day. It’s quite addicting. In China, the e-commerce craze is just as vibrant: total Chinese e-commerce revenue across all sectors is $584 billion, with about 30% of the online market capitalized upon by conglomerate Alibaba. And yet, although China’s e-commerce propensity is similar to other countries, its political system and lack of formal institutions make it stand out. What is the role of the interplay between political economy and e-commerce?
Lizhi Liu, Assistant Professor in the McDonough School of Business at Georgetown University, seeks to answer this question with an innovative methodological approach. She argues that e-commerce has facilitated economic development because it reduces transactional costs, enables national connectivity, and mitigates the growth slowdown ultimately experienced in China’s “competitive federalism” model. However, what is most striking is that major online trading platforms can actually serve as providers of market institutions, Liu claims. In collaboration with Taobao, an Alibaba-owned Chinese online shopping website, Liu devised a field experiment to understand the impact of e-commerce on rural Chinese villages.
Across three Chinese provinces, Liu identified 100 villages. Selected at random, some of these villages were endowed with an e-commerce terminal that consumers could use to access Taobao. Liu found that across villages, those with access terminals saw increase in welfare by means of increased consumption, but within villages the inequality gap actually widened. This is indeed quite similar to the overall trend observed with international trade and globalization: the wealth gap between countries has narrowed, but intra-country inequality is growing more divisive. Ultimately, Liu argues that these welfare benefits are supplemented by political and institutional benefits, such that they provide order to a country with a weak conception of rule of law and prevent market failure and government deficit.
Liu’s talk today was inspired by her book project. To learn more about her other research, please click here. Today’s talk at the Center for the Study of Contemporary China was co-sponsored with Penn’s Center for East Asian Studies (CEAS).