Industrial Agglomeration and Use of the Internet

Taiwan has been hailed as a world leader in the development of global innovation and industrial clusters for the past decade. This paper investigates the effects of industrial agglomeration on the use of the internet and internet intensity for Taiwan manufacturing firms, and analyses whether the relationships between industrial agglomeration and total expenditure on internet usage for industries are substitutes or complements. The sample observations are based on 153,081 manufacturing plants, and covers 26 2-digit industry categories and 358 geographical townships in Taiwan. The Heckman selection model is used to adjust for sample selectivity for unobservable data for firms that use the internet. The empirical results from two-stage estimation show that: (1) for the industry overall, a higher degree of industrial agglomeration will not affect the probability that firms will use the internet, but will affect the total expenditure on internet usage; and (2) for 2-digit industries, industrial agglomeration generally decreases the total expenditure on internet usage, which suggests that industrial agglomeration and total expenditure on internet usage are substitutes.