As Internet access grows at different rates across regions, the Internet has had variable effects on regional economies through agglomeration and spillover effects. This paper uses province-level panel data from 2000 to 2013 to study inequality in Internet access, its spatial effect on regional economies in China and the channels through which the spillover effects are most evident. We find that the Internet has dispersed quickly from core cities, such as Beijing and Shanghai, to coastal provinces; and has had increasingly significant effects on neighboring regions. However, the Internet speed is still comparatively low outside the core cities. We then use endogenous growth models to quantify the effect of Internet access on regional economies. Our results show that, while Internet dispersion is positively associated with economic growth, the spillover effect varies significantly by region and is more pronounced in developed regions. So is the effect of the science and technology environment. Developed regions have benefited the most in the process. The three channels of spillover are listed here in order of relative significance: economy, proximity and urbanization. The spillover effect of the Internet may lead to the divergence of regional economies, working against the national goal of reducing regional inequality.
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