How does digital economy influence urban common prosperity? Evidence from China's demonstration area for common prosperity

Abstract

In the modern era, the digital economy has emerged as a crucial driver of economic growth, playing a significant role in advancing common prosperity through high-quality development. This paper investigates the influence of the digital economy on urban common prosperity and examines the mechanisms that underpin this relationship. Using Zhejiang Province, China's demonstration area for common prosperity as a case study, we analyze data from 11 prefecture-level cities over the period 2011–2021 to evaluate digital economy development and common prosperity levels. Through quantitative analysis, we examine the digital economy's direct effects on common prosperity, along with its indirect impacts through mediation mechanisms and spatial spillovers. The results show that the digital economy significantly enhances common prosperity, a finding consistent even after robustness checks using historical data as instrumental variables and substituting per capita digital economy patents. Mediation analysis conducted via the CMA approach suggests that the digital economy fosters common prosperity by stimulating entrepreneurship, boosting entrepreneurial activities, increasing disposable incomes, and reducing the urban-rural income gap. Moreover, spatial econometric models, such as the Spatial Durbin Model (SDM), show that the digital economy promotes common prosperity through spatial spillover effects. This study offers empirical evidence on how the digital economy can drive common prosperity in Zhejiang Province, offering valuable policy insights for the government's efforts to promote equitable growth, and serves as a reference for other regions across the country.