Digitalization and Income Inequality: Evidence from Households

Shu Tian (), Yu Wu () and Wenwen Zhou ()
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Shu Tian: Asian Development Bank
Yu Wu: Nanjing Agricultural University
Wenwen Zhou: Southwestern University of Finance and Economics

No 764, ADB Economics Working Paper Series from Asian Development Bank

Abstract: By capturing the adoption of digital services and applications as well as digital industry development, this paper constructs a comprehensive index to measure digitalization at the city level in the People’s Republic of China (PRC) and investigates the impact of digitalization on income inequality using household-level data in the PRC. The findings reveal that a one-unit advancement in the digitalization index significantly reduces the income gap by 1.83% for an average household. This mitigating effect remains statistically and economically significant after addressing endogeneity and robustness concerns. The impact is more pronounced in less-developed areas and among households with lower education levels. Further analysis shows that digitalization narrows the income gap by increasing earnings more for lower-income households, primarily through enhanced employment and investment opportunities. Additionally, digitalization boosts business income for entrepreneurial households. These findings provide valuable policy insights, suggesting that developing economies can reduce income inequality by promoting digitalization, supporting digital-related job creation, and enhancing financial literacy.

Keywords: digitalization; inclusiveness; income inequality (search for similar items in EconPapers)
JEL-codes: D30 O10 O30 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2025-01-20
New Economics Papers: this item is included in nep-cna, nep-fle and nep-pay
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