# **5. Conclusion**

E-commerce has developed rapidly in rural China. As the penetration rate in rural areas is just 40 percent (Woetzel et al. 2017), there is still ample room to increase further. However, more studies are needed to understand whether and how e-commerce can help improve the livelihoods and production efficiency in rural areas. Using a nationally representative sample of Taobao Villages, we have detailed the characteristics of Taobao Villages and the households living there, as well as the pattern of e-commerce participation and its effect on income distribution across different stratified groups.

The empirical results show that: 1) e-commerce participation is not random, participation is higher among households with younger household heads, with secondary education (particularly those with technical and vocational education), urban work experience, and knowledge of e- commerce; 2) e-commerce participation is associated with higher household income, with some indications that participation has a strong positive effect on household incomes; and 3) e-commerce benefits among participants seem to be inclusive in Taobao Villages: among the households engaging in e-commerce, while the wealthy gain more in absolute terms, the less wealthy experience higher income growth in relative terms. While younger individuals with technical training, knowledge of e-commerce, and migrant experience are likely to have higher income increase in absolute terms through e-commerce participation, those older, with less education, knowledge, or migrant experience have the potential to benefit more in relative terms.

Due to data limitations, our analysis only estimates the direct effect of e-commerce participation on household income growth in Taobao Villages, where e-commerce is most developed in rural China. To further understand the effect of e-commerce on rural China, a panel data set including villages that significantly engage in e-commerce and those that do not is required. More research is needed to 1) quantify the impact of e-commerce on income growth in rural areas, including in the non-Taobao Villages (areas where e-commerce is less developed), to understand the difference between Taobao Villages and non-Taobao Villages and to identify the potential channels through which e-commerce can be stimulated in broader rural areas to support rural vitalization; and 2) understand the direct and indirect impact of e-commerce development on the local economy, as well as the broader impact on the traditional brick-and-mortar shops and therefore the entire economy.

E-commerce has tremendous potential for stimulating growth, creating jobs, and reducing poverty. The challenges are translating this potential into reality. Developing e-commerce requires more than connecting people to the internet. Infrastructure and logistics, skills and entrepreneurship, as well as a conducive business environments are crucial. In Taobao Villages, investments in technical and vocational training, as well as tailored technical training on e-commerce, seem to help improve e-commerce participation and realize gains. More research is needed to distill lessons and identify the policy levers to support e-commerce development in rural areas and to enhance its impact on poverty reduction and inclusive growth.

24