Reallocate to the right place: The heterogeneous effect of internet use on factor allocation of rural households in China

How to improve factor (mis)allocation is an important topic for both economists and policy-makers. In the digital economy era, existing studies have investigated the impact of information and communication technologies on factor allocation of rural households, but little is known about the heterogenous effect on farmers with differentiated productivity. This study uses panel data from the Chinese Family Panel Studies from 2010 to 2020, to examine the impact of Internet use on factor allocation of rural households from the view of heterogeneity in their productivities. The results suggest that Internet use facilitates a flow of land from low- to high-productivity farmers, and farm labor migration to off-farm activities. Such effect is achieved though easing information constraints and all farmers gain higher income after the reallocation. Our findings suggest that promoting Internet penetration and its functions can help reduce misallocation and improve welfare in rural areas.