The impact of the digital economy on the real economy: promoting or crowding out? Empirical evidence from urban China

Based on the sample data of 285 cities at the prefecture level and above in China, this paper uses the fixed-effect model, mediation effect model, and spatial Durbin model to empirically test the impact of the digital economy on the development of the real economy and its internal mechanisms in multiple dimensions. The study shows that the digital economy has already had a significant crowding-out effect on the development of the real economy. This conclusion is valid after using instrumental variables and introducing "Broadband China" policy shocks. The eastern region is more crowded out by the digital economy than the central and western regions, and the negative impact on underdeveloped cities is more significant than on developed cities. The analysis of the mechanism of action shows that industrial restructuring is essential for the digital economy to squeeze the development of the real economy. The digital economy has a negative spillover effect on the development of the real economy in the surrounding areas. This paper concludes that it is enlightening to rationally develop the digital economy and avoid the economic derealization to virtuality.