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The Mechanisms and Prompting Effect of the Development of Digital Economy on Total Factor Productivity

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  • Yongheng Zhang
  • Xiaoqi Zhang

Abstract

The productivity of data factor through digital technology is an important direction to accelerate the formation of new drivers of economic growth. As a big country in the digital economy, China has rich practical experience in this regard. We study the impact of digital economy on the total factor productivity (TFP) and mechanisms through which the impacts get realized. By the empirical analysis on the annual data of 282 prefecture-level cities in China from 2011 to 2022, we find that the development of digital economy can significantly increase TFP, which, however, may take time to be witnessed. On the other hand, the TFP prompting effect, once manifested, will display a nonlinear accelerating tendency. On the mechanisms, our empirical findings support that the development of digital economy improve TFP mainly via reducing the operating costs of the economy, promoting innovations, and enlarging the size of the market. Our findings provide positive evidences for the development of digital economy, which support the industrial policy designed for prompting digital technology and digital industries in China.

Suggested Citation

  • Yongheng Zhang & Xiaoqi Zhang, 2025. "The Mechanisms and Prompting Effect of the Development of Digital Economy on Total Factor Productivity," SAGE Open, , vol. 15(3), pages 21582440251, July.
    • Handle: RePEc:sae:sagope:v:15:y:2025:i:3:p:21582440251353331
    DOI: 10.1177/21582440251353331
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