How penetration of e-commerce in rural areas drives consumption in China

Purpose This paper explores how rural e-commerce drives consumption in both urban and rural residents; further, it presents evidence from the perspective of e-commerce penetration in rural areas and among farmers to assess the contribution of e-commerce to China’s economic strategy goal of fostering an economy driven by domestic demand. Design/methodology/approach Data of Taobao villages from 2014 to 2021 are matched with data on prefecture-level cities. A two-way fixed effect model, instrumental variable model and group comparison method are employed to explore the role and mechanism of e-commerce penetration in rural areas in stimulating residents’ consumption through consumption propensity, purchasing power and consumer population. Findings The findings confirm that e-commerce penetration of rural areas can stimulate residential consumption, and residents generally adhere to the consumption concept of “living within their means.” The driving effect on residents’ consumption is achieved by expanding the urban consumer population and improving the purchasing powers of both urban and rural residents. The spatial dispersion of e-commerce villages strengthens the positive impact of e-commerce penetration in rural areas on consumption; this strengthening is caused by the increasing consumer population of urban residents and the purchasing power of both urban and rural residents. The agriculture-oriented e-commerce penetration of rural areas negatively impacts residents’ consumption, consumption propensity and consumer population; however, industrial-oriented penetration positively affects residents’ consumption, consumption propensity, purchasing power and consumer population. Originality/value To the best of our knowledge, this paper is the first to analyze the role and mechanism of e-commerce penetration in rural areas in stimulating residents’ consumption through consumption propensity, purchasing power and consumer population. This study contributes to advancing e-commerce and consumer theory by exploring the realm of rural e-commerce while also presenting empirical evidence from China.