What Determines Internet Diffusion Loci in Developing Countries: Evidence from China and India

Abstract

This paper examines the current stages of Internet and e-commerce development in China and India. Although China exceeds or equals India in several dimensions of Internet diffusion used in this and past studies, the Economist Intelligence Unit (EIU) puts India in the group of "E-business followers" and China in the group of "E-business laggards". This paper investigates these seemingly inconsistent facts. The analysis indicates that influence of Marxist labor theory and the Post-Mao reform in China resulted in self-dependence in IT products and heavy investment in and reengineering of telecom sector, which mainly contributed to China's better performance in Internet penetration. India's democratic tradition, English language advantage and recent liberalization, on the other hand, make it better prepared for the e-business. A causal model is also proposed to explain Internet diffusion in developing countries.

Keywords: People's Republic of China, India, Internet, innovation diffusion, historical methods

JEL Classification: O33