Digital divide or digital dividend? the impact of internet use on middle-class formation: Evidence from China

Abstract

The middle class plays a crucial role in economic growth and social stability, yet the factors influencing its formation, particularly the impact of Internet use, remain underexplored. This study utilizes data from the China Family Panel Studies from 2014 to 2020 and employs a Probit model to examine how Internet use affects the growth of the middle class at the household level. The results show a significant positive relationship between Internet use and middle-class formation. A series of robustness checks, including the instrumental variable approach, extended regression models, and Heckman's two-stage model, confirm the validity of this conclusion. Internet use promotes entrepreneurship, increases financial participation, and enhances non-agricultural employment opportunities, driving middle-class expansion. The effect is especially pronounced among households in central and western regions, those with lower education, and older families. By revealing Internet use mechanisms and varied impacts on the middle class, this study offers new insights and strategies for leveraging digital tools to support socio-economic development. These findings are particularly relevant for policymakers aiming to strengthen and expand the middle class.