Has digital infrastructure accelerated enterprises' specialization? Evidence from China

Purpose This paper intends to explore the impact and mechanism of digital infrastructure development on enterprises vertical specialization. The following questions are discussed: (1) What is the impact of digital infrastructure on enterprise vertical specialization? (2) If the digital infrastructure serves to raise the level of vertical specialization of enterprises, does the impact differ depending on the level of city, industry and enterprise? Design/methodology/approach The research employs the “Broadband China” strategy as a quasi-natural experiment for digital infrastructure development, with a multi-period difference-in-difference model constructed to test the research hypothesis. The study examined data from Chinese A-share enterprises listed between 2007 and 2019. Findings The study’s findings indicate that the construction of digital infrastructure significantly increases firms' vertical specialization. According to the mechanism analysis, digital infrastructure can increase vertical specialization by lowering market transaction costs. This study employs group regressions in terms of cities, industries and companies to gain a better understanding of the heterogeneity of this effect. The results indicate that digital infrastructure contributes more significantly to higher levels of vertical specialization among enterprises in areas with higher levels of innovation and entrepreneurship as well as in eastern and central cities, service industries, and mature firms. Research limitations/implications There are two shortcomings to this study that warrant investigating further. The first limitation is the mechanism. This study simply looked at the mechanism between variables in terms of transaction costs, using existing theories. As the level of technology continues to improve, the process of digital infrastructure’s impact on vertical specialization requires greater investigation. Another weakness of this study is its country-specific focus. The effect of digital infrastructure on vertical specialization differs by country, reflecting disparities in economic growth. Further discussion of cross-national comparative studies is required. Originality/value The study’s marginal contributions are largely represented in the two aspects listed below: (1) This paper includes a comprehensive theoretical study of the influence of digital infrastructure development on vertical specialization, focusing on transaction costs. This provides a theoretical foundation for the empirical study presented in this paper; (2) this study fills the gap in earlier research in this field, and the findings broaden research findings in areas such as digital infrastructure development and vertical specialization.