The last element of information we use in our analysis is a measure of the intensity with which each industry uses the internet. The internet is likely to be more important for some industries than others due to differences in their products, production processes and transactions processes. We consider three measures, each with its own limitations, but each providing some information on the intensity with which industries use the internet. Our first measure is the share of post and telecommunications expenses in total intermediate expenses at the 2-digit industrylevel for China. This measure is designated as _China share of post and telecommunications_ , and based on an input-output table for China in 1998, obtained from the World Input-Output Database. Our second measure is the share of information and communications technology (ICT) capital services in total capital (the sum of ICT and non-ICT capital) services at the 2-digit industry level for the United States in 1998. This measure is designated as _US share of ICT capital services_ , and based on U.S. data in the KLEMS database. This measure of sectoral ICT intensity follows most previous studies on ICT and productivity, starting with Stiroh (2002).<sup>16</sup> By focusing on the U.S. this measure can be viewed as providing information on the technological characteristics of the industry, and its use alleviates concerns that may arise with the China share of post and telecommunications being endogenous to firm performance in China. A third measure, which we will only use in conjunction with the _number of .CN domains_ as a measure of internet penetration, is the share of firms with a website at the 3-digit industry level in Vietnam in 2007. This measure is designated as _Vietnam share of firms with websites_ , and based on the 2007 Vietnam Enterprise Census.<sup>17</sup> Vietnam’s production structure and processes exhibit similarities to those in China, since Vietnam followed a similar growth path based on exports and foreign investment. Therefore, using data for Vietnam is an appropriate choice and again empirically preferable to the use of data on firms with websites for China (if it were available) due to endogeneity concerns. Our use of measures based on data for countries other than China implies an assumption that the internet intensity of industries in those countries is a good proxy for the potential degree of reliance on the internet of firms in the same industries in China.

For illustrative purposes, Appendix Table 1 shows the actual measures of intensity of internet use at the 2-digit level. Industries with generally higher reliance on the internet are

> 16 In contrast to Stiroh (2002) we do not exclude IT-producing industries from our analysis―they naturally exhibit some of the highest shares of ICT capital services.

> 17 The Vietnam Enterprise Census is collected by the General Statistics Office in Hanoi and covers about 300,000 firms each year classified according to the 4-digit of the Vietnamese Industrial Classification which is aggregated and concorded to the Chinese firm-level data at the 3-digit level based on the verbal descriptions, as the two classifications are quite similar drawing on the ISIC.

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