Digital dams: e-commerce as a strategy to retain capital in Chinese counties

Purpose Regional development necessitates industrial advancement and financial support particularly in down-end regions such as counties. Prolonged capital outflows in these local areas not only exacerbate shortages of funds and hinder development but also weaken the socioeconomic transformation and growth dynamics of regional economies. This study employs the difference-in-differences (DID) method to explore the empirical impact of electronic commerce on county-level regional capital flows and their mechanisms within the framework of the National Rural E-commerce Comprehensive Demonstration (NREC) policy. Design/methodology/approach This study utilizes national county-level panel data from 2009 to 2021 and applies a DID approach to mitigate endogeneity concerns, thereby providing a robust analysis of the NREC policy's causal effects. It also integrates advanced econometric techniques, such as Goodman-Bacon decomposition and staggered DID estimators, to account for the complexities of staggered policy implementation and to minimize biases arising from overlapping treatments and differential policy intensities. Findings The empirical findings reveal that electronic commerce can function as digital dams, effectively channeling and retaining capital within county economies, thus mitigating the existing drain of resources to urban centers. By stimulating local credit demand, increasing credit supply and expanding financial support for digital commerce development, the policy significantly reduces per capita capital outflow from these regions. This effect is more pronounced in the western area and varies significantly with upward cost levels, education levels, digitalization levels, access to financial institutions and urban-rural distance. This digital dam effect, fortified by targeted policy measures, plays a supportive role in modifying the economic landscape by stabilizing local economies. Practical implications It is recommended that governments at all levels strengthen guidance and financial support for rural e-commerce policies and continuously enhance the rural e-commerce ecosystem to reduce capital outflows and foster county-level development. Originality/value This study's innovative approach and substantive findings contribute profoundly to our understanding of the economic dynamics governing county-level regional capital flows and the role of e-commerce in shaping these dynamics. The implications extend beyond academia, offering actionable insights for economic strategies that harness digital transformation to foster comprehensive county development including rural areas.