Digital economy and its effect on total factor productivity in services: evidence from China

The emergence of the digital economy has provided a new development model and driving force for social and productive activities. The quest to accelerate the transformation and upgrading of the service economy through the digital economy has garnered significant attention in society and academia. In light of this context, this study employs data envelopment analysis (DEA) to measure total factor productivity (TFP) in the service sector, utilizing provincial panel data from China for the period 2007–2019. The empirical results indicate that the digital economy significantly contributes to the growth of TFP in the service sector, and specifically, the channels of its impact include alleviating resource mismatch and promoting industrial structure upgrading. Furthermore, the impact of the digital economy on services TFP varies by region and stage of development of the digital economy. Moreover, based on the informational characteristics of the digital economy, the digital economy not only affects the local service TFP, but also generates a spatial spillover effect on the service TFP of neighbouring regions. This study provides a new empirical evidence to examine the productivity improvement of the digital economy in the service sector and provides important policy implications for achieving high-quality development of the service sector.