# **3. Data**

In our analysis, we use firm-level manufacturing data, province-level internet penetration, and industry-level measures of internet use.

## **3.1 Firm-Level Manufacturing Data**

The firm-level data set used in our analysis is the annual survey conducted by China’s National Bureau of Statistics (NBS) covering all industrial firms that are state-owned, and those not state-owned with annual sales exceeding 5 million RMB (about 770,000 USD) for the period 1998-2007.<sup>10</sup> Our analysis focuses on manufacturing firms, thus excluding mining and public utilities’ firms. A unique identifier makes it possible to follow firms over time. The data set is an unbalanced panel of firms whose number varies from a low of 147,109 in 1999 to a high of 312,365 in 2007.<sup>11</sup> Firms are classified into the 4-digit Chinese Industrial Classification (CSIC) industries, but we work with the more aggregated 3-digit industry classification because that can be concorded with other data we use.

The NBS survey collects firm-level information on output, number of workers, expenditures on intermediates, total assets, and exports, which we use to construct our firm outcome measures. A key variable for our analysis is the firm’s location in a given Chinese province. The NBS data provide information on either the actual province of a firm or the address of a firm with a postal code which allows us to identify the province.<sup>12</sup> We apply the following cleaning procedures to get to the final estimating sample: we drop from the sample observations with a missing firm identifier or with missing information or negative values for total output, number of workers, total exports, total assets, expenditures on intermediates, province, or industry.

The firm-level outcomes used in our analysis are defined as follows. Export participation is an indicator variable taking a value of 1 if firm nominal exports are positive and 0 otherwise.

> 10 These data have been used extensively in recent research on productivity, export decisions, and many other micro topics, for example in Brandt et al. (2012) and Du et al. (2012). Brandt et al. (2012) show that in comparison to a full census of firms in China the NBS data account for only 20% of industrial firms (the other 80% are smaller than the 5 million RMB cutoff), but they account for more than 70 percent of the industrial workforce, 90 percent of output and, importantly for our analysis, 97.5 percent of exports. 11 The differences in the number of firms across years can be driven by increases or reductions in annual sales relative to the 5 million RMB threshold or by changes in ownership.

> 12 The NBS data set includes for years 2004-2007 a variable with the Chinese name of the province. For firms present in the data set in these years this province information is used to fill in values for the previous years. For firms not present in the data set in these years, we use information on the zip code of the firm’s address, given that zip codes in China have a structure whereby one part of the code reflects the province. For a tiny share of firms (1,355 firms out of 570,108 or 0.23%) there is a change in province during the sample period.

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