The Digital Economy and Urban–Rural Income Inequality: Implications for Sustainable Development in China

Abstract

Reducing urban–rural income inequality is a central objective of sustainable development and a critical challenge for inclusive growth in emerging economies. This study examines the impact of the digital economy on urban–rural income inequality in China. Using panel data across 279 cities in China and Chinese Household Income Project (CHIP) data, we find that the digital economy significantly widens urban–rural income inequality. Specifically, digital industries and innovations are the main drivers, contrasting with inclusive infrastructure. Although we observe a positive association between the digital economy and educational attainment among rural residents, such improvements do not appear to be fully translated into higher income. One possible explanation is that the digital economy is more effective in alleviating skill mismatch among urban residents than among their rural counterparts. Finally, our results suggest that Public Employment Services may help mitigate this negative effect through channels such as fiscal subsidies and improving skills training accessibility. Our findings highlight the need for caution regarding the inequality implications of digital economy development in emerging economies and underscore the crucial role of institutional arrangements in promoting socially sustainable and inclusive development.