# 16-031/III (2016-04-25; 2018-01-07)

Chia-Lin Chang, National Chung Hsing University, Taichung, Taiwan; Michael McAleer, National Tsing Hua University, Taiwan; Erasmus University Rotterdam, the Netherlands, and Complutense University of Madrid, Spain; Yu-Chieh Wu, National Chung Hsing University, Taichung, Taiwan
Industrial penetration, Internet intensity, Sample selection, Incidental truncation.
JEL codes:
D22, L60

This paper investigates the effect of industrial penetration (geographic concentration of industries) and internet intensity (the proportion of enterprises that use the internet) for Taiwan manufacturing firms, and analyses whether the relationships are substitutes or complements. The sample observations are based on 153,081 manufacturing plants, and covers 26 two-digit industry categories and 358 geographical townships in Taiwan. The Heckman selection model is used to accommodate sample selectivity for unobservable data for firms that use the internet. The empirical results from two-stage estimation show that: (1) a higher degree of industrial penetration will not affect the probability that firms will use the internet, but will affect the total expenditure on internet intensity; (2) for two-digit SIC industries, industrial penetration generally decreases the total expenditure on internet intensity; and (3) industrial penetration and internet intensity are substitutes.