The Impact of Internet Consumption on China’s Economic Development

Abstract: This thesis explores the impact of Internet consumption development in China through examining the causal relationship between Internet consumption and GDP under a bivariate VAR model, and between Internet consumption and traditional consumption, telecommunication industry, and express delivery industry under a multivariate VAR model using quarterly data from 2006-2013. The causal relationship between variables is investigated by the approach of Granger causality following Toda-Yomamoto procedure. The empirical results indicate a strong bi-directional causality between Internet consumption and GDP, between Internet consumption and traditional consumption, and between Internet consumption and telecommunication industry. Meanwhile, the results also show a unidirectional causality form Internet consumption to express delivery industry. All these test results support the hypothesis that the rapid development of Internet consumption has positive influence on China’s economic development, which is consistent with country’s current strategy to put domestic consumption as driving force for economic growth.