Digital Economy's Spatial Implications on Urban Innovation and Its Threshold: Evidence from China

Abstract

The digital economy has great potential to sustain China's high-quality economic growth and substantially strengthen urban innovation capacity. This paper developed a digital economy index using city-level data from China and measured the level of urban innovation with patents per capita. We used a spatial econometric model to explore the spatial implications of the digital economy on urban innovation, probed into the mechanism by which the digital economy affects urban innovation, and further measured the spatial spillover distance and threshold of the digital economy on urban innovation. The findings suggest that China's digital economy and urban innovation are characterized by spatial aggregation, and the spatial distribution varies from region to region. The digital economy, with strong spatial spillover effects on the innovation capacity of cities in China, may not only enhance the innovation capacity of one city but also drive a simultaneous growth of the innovation capacity in peripheral cities. The analysis of mechanisms indicates that the digital economy enhances local innovation capacity directly through promoting human resources and increasing science and technology spending and drives the improvement of the innovation capacity in peripheral cities through the spatial spillover of human resources and science and technology spending. The effects of the latter one outweigh those of the former one. The analysis of heterogeneity shows that the central, western, and northern regions, where the digital economy is relatively less developed, have the latecomer advantage, and the digital economy has more prominent effects on innovation capacity. Calculating the spillover distance and threshold demonstrates that the digital economy influences urban innovation within a spatial spillover range and threshold of approximately 500 kilometers. Within 500 kilometers, the positive spatial spillover effects prevail, while beyond 500 kilometers, the negative siphon effect prevails. Therefore, it is necessary to consider the differences in the impact and role of the digital economy on urban innovation from a spatial perspective.