The effect of the digital divide on household consumption in China

The rapid digitization of economy and the widening of digital divide have attracted the attention and interest of many researchers. In such a context, this paper aims to identify the causal effect of the digital divide on household consumption. Using the 2017 and 2019 waves of the China Household Finance Survey (CHFS) data, we find that the digital divide has led to a significant reduction in household consumption. Besides, such a negative correlation results from the combined effects of (i) rising unemployment, (ii) intensified liquidity constraints, and (iii) declining financial literacy. Furthermore, it is discovered that the digital divide has different impacts on households depending on the specific consumption category, thus hindering the diversification of consumption. Our findings are expected to shed some light on the little-documented evidence with profound implications for the socioeconomic policies on the application of technology to enhance the efficiency and inclusiveness of the digital economy.