commerce service system reaching 1,000 counties and 100,000 villages to encourage e-commerce activities in rural areas.<sup>5</sup> In this paper, we aim to fill the gap in the literature to study the association of e-commerce participation and household income growth in Taobao Villages, where e-commerce development is more advanced in rural China and economies of scale can potentially play a role. The paper also provides policy suggestions to strengthen the role of e-commerce in inclusive growth. This study will draw on the data from the Taobao Village Survey, with information at the village, household, and individual levels, to examine the role of e-commerce participation. To our knowledge, this study will be the first to draw on systematic data in rural China, where engagement in e-commerce is strong. It has three objectives: 1) examine the factors that determine the participation in e- commerce; 2) compare with the counterfactual (without e-commerce participation) to estimate the direct effect of e-commerce on household income, and 3) investigate the distribution of the benefits of e-commerce participation among households of different characteristics and its inclusiveness.

The paper is structured as follows: section 2 provides a broad picture of the Taobao Villages, drawing on the Taobao Village Survey; section 3 presents the research methodology of propensity score matching; section 4 discusses the empirical results related to the role of e- commerce participation on household income growth in Taobao Villages and for different groups of the population; and section 5 concludes.

# **2. Overview of Taobao Villages**

In recent years, villages with a large share of online sellers and a large share of GDP coming from e-commerce, or Taobao Villages, emerged and developed rapidly in rural China, particularly in the coastal region. This rapid growth demonstrates that the transition from physical to digital commerce, often perceived as a phenomenon of high-income countries in urban areas, can happen at a lower level of development and in rural areas as well.

# **_2.1. Taobao Village Survey data and summary statistics_**

This analysis uses the Taobao Village Survey, a collaboration between the World Bank, Alibaba Group, and Peking University, to examine the characteristics of the Taobao Villages and households. The survey, conducted between August and September 2018, is representative of the universe of 2,118 Taobao Villages in 2017. The survey uses a stratified random sampling design with villages as the primary sampling units, which are stratified by the gross merchandise value (GMV) of the villages’ online sales in the Alibaba platforms, including Taobao.com and Tmall.com. The secondary sampling units are the cell grids over the satellite image of the village maps, where a specific number of grids are randomly chosen according to the estimated number of households

> 5 Under the Rural Taobao Program ( 农村淘宝 ), Alibaba Group establishes thousands of e-commerce outposts across China in collaboration with regional governments and recruits local talent to serve the demand of the local communities. Alibaba Group’s rural strategy is supported by its various initiatives involved in rural e-commerce, such as the Specialties of China ( 特色中国 ) and agricultural resources ( 淘宝农资 ) channels on Taobao Marketplace, Taobao University, Tmall.com’s fresh produce channel ( 喵鲜生 ), and the Blue Stars program ( 满天星计划 ).

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