The potential contribution of digital development to economic and social welfare remains a topic of debate and active empirical inquiry. Unfortunately, for developing countries, data are relatively scarce, and we have little robust evidence on whether and how digital technologies contribute to income growth, what this depends on, and who are the potential “winners and losers” in digital development. Policy makers, the private sector, and others in the development community have a strong and growing interest in how to harness digital technology to aid growth and support job creation in an inclusive manner.


Among the many digital technologies with relevance for development, e-commerce stands out because of its potential to overcome market barriers and connect consumers and businesses even when traditional commercial and market transactions are relatively limited. It can create jobs directly as well as through forward and backward linkages in the e-commerce ecosystem, such as logistics services; it can improve household welfare by o ering a wider variety of products, potentially at lower prices; and it can contribute to economic growth by lowering the asymmetry of information and increasing economic e ciency.

China has one of the fastest growing e-commerce markets in the world. As such it is an important case study to analyze the potential of e-commerce to generate welfare bene ts, including in rural communities previously considered relatively distant from the market. The experience in China shows that e-commerce is not necessarily limited to high-income countries or urban areas, and it has not been confined to the high-tech sector. E-commerce also offers employment opportunities in developing countries and in rural areas for semi- skilled workers and other groups (including people with disabilities) who, in the past, had more limited opportunities in the labor market. The ratio of women to men entrepreneurs in e-commerce is at or near parity on the Alibaba platforms, compared to 1:3 in all business. Three quarters of rural e-tailers are 20-29 years old.

The present volume presents a series of analytical studies that attempt to bring more evidence to bear on the discussion about the development bene ts of e-commerce. It is based on a combination of statistical data collected for China as a whole, as well as data from a speci cally commissioned survey (a joint work with Peking University in collaboration with Nankai University) of Taobao Villages, rural villages in China substantially engaged in e-commerce. The present volume is the result of a joint research initiative between the World Bank and the Alibaba Group o ering rich and unique evidence on the growth of e-commerce in China and how this has been associated with improvements in people's livelihoods in select communities.

Conclusion and Next Steps
The success of e-commerce development in rural China shows that the bene ts of digital technology are not necessarily limited to high-income countries and urban areas. With the right conditions, it can ourish in developing countries and in rural areas and can be a powerful instrument for rural vitalization and poverty reduction. The rapid development of e-commerce in rural China has built on tremendous improvements in human capital as well as in logistics and transport infrastructure. The former includes compulsory nine-year education as well as the experience and entrepreneurial spirit that returned migrants bring home. These “analog complements” are reflected in a Human Capital Index of 0.67 and a Logistics Performance Index of 3.61 and, ranking China 46 and 26 in the world, or 6 and 1 among all upper-middle-income countries respectively.
E-commerce is not suited to all locations, all households, or all products and should be deployed with care. Considering local conditions and drawing on the existing and latent comparative advantages are important for selecting e-commerce as an instrument for poverty reduction and inclusive growth. The available data are not sufficient to quantify the effects of e-commerce development on local economic development. More research is needed on the cost-e ectiveness of the targeted inventions and the causal relationship between e-commerce participation and improved lives and to identify the channels through which such bene ts are realized. Where e-commerce is a suitable and desirable development option, policymakers and development partners can bene t from information and lessons learned about policies that can support its development in rural areas and enhance its e ect on job creation and inclusive growth.


Risks and Challenges in E-Commerce Development.

As e-commerce continues to prosper and becomes more important in the economy, new risks and challenges arise. While technology transformation and platform economy increase market efficiency, the accompanied disruption brings risks for sellers and buyers, as well as to the e-commerce ecosystem. On the regulatory side, there are critical issues to grapple with, such as how to regulate the platform providers to ensure a level playing eld for comparable digital services, protect consumers, and ensure fairness between online and physical vendors.
As indicated in the literature, sellers and buyers face special risks online compared to offline business—from cyber security, privacy, fraudulent or defective/counterfeit products, and technical concerns regarding electronic payment, and risks stemming from imbalances in competition among platform providers. Large platform companies can generate significant network effects and create high user values and can be efficient and socially beneficial. But existing large platform companies with signi cant advantages over new entrants can potentially distort the market. With rising challenges and opportunities in the platform economy, a regulatory and policy framework is needed to support the healthy development of the ecosystem, providing level playing field and protection to all parties, including sellers and buyers, as well as the platform companies.
Due to the potential reach of all sellers in an e-commerce marketplace, competition is fierce and survival uncertain. In Taobao Villages, e-shops that have been in operation for two years or more show strong performance, but few survive the earliest years. Low profit margins are a major challenge for young online shops. In addition, the “one-click-away” nature and “just-in- time” delivery requirement can make it di cult for sellers to determine the right level of stock required to maximize pro ts (and still quickly respond to market demand) and minimize risks (due to large stocks of unsellable products). Yet, however harsh that is for small online shops, the platform economy can provide a niche market that may not exist in traditional brick-and-mortar business, which is particularly important for the small shops, and produces efficiency gains overall. In addition, customers can benefit from the reduction of information asymmetry, allowing them to nd products and compare prices more quickly.


Where to Go from Here.

The sun is rapidly setting on the “wild frontier days” of e-commerce development and a new phase is beginning during which new balance between online buyers, online sellers of all sizes, platform companies, and traditional offline business is being developed. This new frontier will require careful testing of policies, and any resulting regulations, to ensure their e ectiveness and assess their e ects on the market and implications for the entire economy and human welfare. New institutional arrangements, from business registration to tax administration, will need to be developed or strengthened to meet evolving needs. It is therefore essential to continue serving e-merchants as well as supporting cross-fertilization with traditional o ine businesses.
The success of e-commerce development in rural China has unique elements. Countries that look to China for evidence need to keep in mind the importance of the “analog complements.” Nevertheless, China’s experience o ers pointers for supporting the development of e-commerce for fostering employment and support growth. Most notably, the China experience shows that, targeted support that lowers entry barriers and transaction costs, addresses information asymmetry, and allows new entrants to participate in online markets, can help to launch e-commerce in less advantaged areas.
It may not be necessary to wait for perfect conditions to develop e-commerce. Creative solutions can go a long way to overcome hurdles, but execution of the arrangement must consider the local culture and have solid business and institutional supports in place. Where large domestic markets are already established, specific improvements may be required. Where markets are less developed or fragmented, a step-by-step approach may be needed, letting the market play a role in “selecting the winners,” focusing support in areas with most potential, and supporting the demonstration e ects of early successes spill over to other areas. The additional resources generated from the early successes can then be used to support the next round and provide equitable opportunities for all. As always where poverty reduction and shared prosperity are the goal, the government cannot operate alone—private sector partners, citizens, and local communities need to help develop solutions and spur action.