The Importance of the Internet on Improving Economic Welfare: An Empirical Evidence from Indonesian Rural Household

This paper aims to examine the sources of the economic prosperity of Indonesian rural household with a focus mainly on the role of internet utilization. We utilize household income as the proxy of economic welfare. We employ a probit model with an instrumental variable to address the endogeneity issue, i.e., the possibility of a two-way causal relationship, of the Internet subscription and welfare. We apply the model to the data collected through a nationwide survey in 2016. This study empirically finds that the promotion of internet coverage has a positive impact on the household monthly income. This finding provides evidence of a new pathway to get out of poverty in rural areas. To increase Internet adoption so as the impact spreads more widely, the government along with all stakeholders have to concerns both, on the supply as well as on the demand side. On the supply side, in addition to encouraging infrastructure expansion, it is essential to continually ensure that all provided content on the Internet is reliable, secure, and relevant with local needs. The government also has to keep the internet service as well as user device cost affordable for all level of society. While on the demand side, the government has a responsibility to increase digital awareness and digital literacy of rural community so that they can utilize internet more effectively and reap more benefit from the Internet.