Association between Regional Digitalization and High-Quality Economic Development

Abstract

Regional digitization became an important driving force for high-quality economic development. Digital empowerment can effectively balance factor supply and demand and promote high-quality economic development. This study selects a sample of Chinese cities from 2011 to 2018 to investigate the association between regional digitalization and high-quality economic development. This study further examines the non-linear relationship between regional digitalization and high-quality economic development using market and government governance as threshold variables. This study uses a two-way fixed effects model with a threshold effects model for the econometric analysis. The study finds that regional digitalization effectively contributes to high-quality economic development from three major changes: quality, efficiency, and power. Thresholds of effective markets and productive government characterize the impact of regional digitalization on quality economic development. The more effective the marketization process or the building of a productive government, the more effectively the digitization of the region contributes to high-quality economic development. The contribution of this paper is to reveal the internal logic of the regional digitalization process in advancing quality economic development and to provide new theoretical evidence for action plans to strengthen the construction of efficient markets and responsive government.

1. Introduction

High-quality development is China’s economic and social development theme between 2021 and 2025. The high-quality economic development promoted, including the three major changes in quality, efficiency, and power, became a priority for the Chinese government. High-quality economic development connotes stable economic growth momentum, coordinated development among regions, greater achievements in green and innovative development, and a greater sense of gain for the people.

The Chinese government in 2020 pointed out the need to “develop the digital economy, promote digital industrialization and industrial digitization, promote the deep integration of the digital economy and the real economy; strengthen the digital society, digital government development, enhance public services, social governance, and other digital intelligence levels”. The rapid advancement of a new generation of information, communication, and data technologies, such as 5G, big data, the Internet of Things, and blockchain, bring new growth drivers for high-quality urban development [1,2]. Regional digitization refers to the digital transformation of various social organizations that maintain the stable operation of the national economy by relying on digital empowerment in the region and by embedding digital technologies to integrate the business and operation models, achieve online and offline integration, and improve the efficiency and quality of services [3,4]. The essence is to promote the high quality and efficient distribution and operation of production factors through the innovative use of digital technology, promote the steady advancement of industrial digitization and digital industrialization, and ultimately achieve high-quality economic development. In other words, digitalization gives the region new drivers for quality change, efficiency change, and power change. Specifically, quality change means improving output efficiency based on digital innovation on the supply side to improve people’s satisfaction with product supply and services effectively. Efficiency change integrates data elements with traditional production factors to enhance economic growth efficiency through technology innovation-driven mechanisms [5]. The power change includes three main changes: reform, innovation, and talent. The three major changes are the goals and requirements of high-quality economic development and the path to digital advancement.

Further, the government can promote economic development by providing more digital infrastructure and related complementary public goods in digital advancement. In an efficient market environment, all kinds of factors of production are fully based on the market mechanism, stimulating market participants’ innovation and entrepreneurial activities, thus achieving efficient allocation of resources to contribute to high-quality economic development. Therefore, in this context, exploring the mechanism of regional digitization in high-quality economic development and examining the role of effective market and government governance in promoting the association between regional digitization and high-quality economic development can not only reveal the logic of regional digitization in promoting high-quality economic development and obtain empirical support for using digitalization opportunities to promote high-quality economic development, but also provide new theoretical evidence for strengthening the effective market and government governance.

The possible contribution of the study lies in four aspects. Firstly, this paper complements the study of factors influencing quality economic development. Unlike the existing literature that looks at environmental regulation, financial systems, innovation-driven strategies, and other research perspectives [6,7,8], this paper empirically tests the impact of regional digitization on high-quality economic development based on a socialist context with Chinese characteristics. This study reveals that regional digital development achieves high-quality economic development by promoting three major changes in quality, efficiency, and power, clarifying regional digitalization’s mechanism for high-quality economic development, and enriching the research perspective of high-quality economic development.

Secondly, unlike the existing literature [9,10], which measures high-quality economic development using the five development concepts and total factor productivity, this study constructs and empirically investigates an evaluation system for high-quality economic development based on the “Main part-Main line-Cornerstone” perspective of high-quality economic development from three changes. This paper redefines the meaning of quality economic development and expands the research on quality economic development.

Thirdly, little literature discusses how efficient market and government governance affect the relationship between regional digitization and high-quality economic development. Therefore, the study utilizes efficient market and government governance as threshold variables to empirically analyze the possible non-linear relationship between regional digitalization and high-quality economic development. This study provides Chinese experience on the synergy of “effective market” and “active government”, a practical reference for Chinese firms to achieve high-quality development during the economic transition period.

Finally, the literature mostly discussed the economic consequences of the digital transformation of companies from a business perspective [11,12]. Still, little examination took place on the impact of digitalization on the quality development of the economy at the level of the whole region, unlike the existing literature that only examines regional digitization’s effects on a single aspect of regional finance, environmental governance, and agricultural development [13,14,15]. Based on China’s economic development laws, we explored the effects of regional digitalization on the high-quality development of the entire regional economy. We expanded the literature on the consequences of regional digitization.

The rest of the paper is organized as follows: The next section is the literature review. Section 3 presents a theoretical analysis and hypothesis development. Section 4 describes the data and research design. Section 5 presents the empirical results, providing the results of the benchmark regression, mechanism test, regional heterogeneity analysis, threshold effect analysis, and robustness test. Section 6 is the discussion part, which introduces the research significance, study limitations, and suggestions for further studies of the article. Finally, Section 7 summarizes the findings and provides policy recommendations.

2. Literature Review

Existing scholars’ research on high-quality economic development is mainly conducted in three dimensions: the connotation, comprehensive evaluation, and development path of high-quality economic development. First is the examination of the connotation of high-quality economic development. As the theme of economic and social development during the 14th Five-Year Plan period, high-quality development is a new development concept and an important choice of development strategy in the context of the changing major contradictions in China’s society. High-quality economic development can be interpreted as lower costs, higher efficiency, higher level of the hierarchy, and greener and more coordinated sustainable development [16]. In terms of the contemporary connotation of high-quality economic development, it is a way of development that can meet the growing needs of the people for a better life, a development that embodies quality first, efficiency first, and is fairer and more sustainable [17]. The second is the evaluation study of high-quality economic development. Some scholars mostly constructed the evaluation system of China’s high-quality economic development in the new era based on the five development concepts [18]. The third is the exploration of the driving path of high-quality economic development. Studies show that the driving paths for high-quality economic development are to upgrade the level of the supply system and stimulate the vitality of micro-entities [19]; to improve total factor productivity with efficiency changes as the core [20]; to use technological innovation as a new growth engine [21]; and to optimize and upgrade the industrial structure to form a high-quality supply system [22].

The endogenous economic growth theory asserts that one factor in socioeconomic growth cannot be ignored: the accumulation of social knowledge. Digital development created the conditions for disseminating and storing social knowledge, and the exponentially rapid growth of knowledge dissemination and storage creates favorable conditions for economic development. Most digitization-related studies were conducted at the macroeconomic, meso-industry, and micro-enterprise levels. At the macro level, the rapid advancement of digitalization, with digital technology as a new input factor, enabled industries to use digital empowerment to bring about improvements in production, distribution, allocation, and sales efficiency, optimizing resource allocation efficiency and further reducing production costs and resource wastage [23]. At the meso level, total factor productivity is higher in digitally enabled upgrading industries, and the increase in total factor productivity is more pronounced in high-tech industries [24]. At the micro-enterprise level, digital and technological innovations drive production intelligence, while the convergence and permeability of data elements significantly improves the efficiency of enterprise activities in research and development, production, manufacturing, and sales, ultimately enhancing the efficiency of enterprise operations and management, and achieving the goal of using data processes to drive their digital transformation [25]. Most research on digitally driven high-quality economic development shows that the digital economy can significantly contribute to high-quality economic development. The intrinsic mechanism of digital economy-driven high-quality economic development is mainly manifested in promoting the optimization and upgrading of industrial structure [26], expanding factor sources and improving resource allocation [27]; realizing technological innovation and diffusion [28]; optimizing consumption structure and improving production efficiency [29], etc.

In summary, there is a wealth of academic research on digitization and high-quality economic development. However, there are still the following shortcomings: For one, despite the great achievements of the internet in real life and the digital economy gradually becoming an important part of the national economic form, there is an extreme lack of empirical research to accurately assess the role of digitization on high-quality development. There is still no unified method for measuring regions’ digitalization and the economy’s quality development. Secondly, there is little literature on how efficient markets and productive government building affect the relationship between regional digitalization and quality economic development. Therefore, this paper first examines the mechanism of influence and economic effectiveness of regional digitalization on high-quality economic development and then further examines the moderating role of effective markets and proactive governments on the relationship between regional digitalization and high-quality economic development to provide a theoretical basis for the practice of regional digital transformation in China. Unlike the existing literature, which was analyzed from provincial panel data, this paper uses a threshold effect model to empirically analyze the impact of regional digitalization on high-quality economic development based on city-level panel data in China, further exploring the relationship between the two and their validity from a micro perspective, and adding to the relevant literature on digitalization and high-quality economic development. Finally, we choose efficient markets and productive government as threshold variables to empirically explore the possible non-linear relationship between regional digitalization and high-quality economic development under different conditions. This paper enriches the literature on the better combination of efficient markets and productive government.

3. Theoretical Analysis and Research Hypotheses

3.1. Regional Digitalization and High-Quality Economic Development

High-quality economic development is the national strategy. Over the years, the Chinese government stressed that “to promote high-quality development as the theme, China must unswervingly implement the new development concept, strengthen the supply-side structural reform as the main policy, adhere to the quality first, efficiency first, effectively transform the mode of development, promote quality change, efficiency change, power change, so that the better development benefit all the people, and constantly realize the people’s aspiration for a better life”. However, in recent years, with the emergence of technologies such as cloud computing, big data, and the Internet of Things, the indirect contribution of digital technologies to improving total factor productivity and economic growth is increasing [30]. First, through the digital and precise allocation of resources, innovative production methods, and overall digital supervision of the production process, innovation output’s efficiency and quality are further improved, promoting high-quality development of innovation and economy. Second, digital technology can promote the transformation and upgrading of traditional infrastructure into digital infrastructure, facilitating the digital upgrading of traditional industries and improving the total productivity of various industries [31]. Third, digital technology gives rise to a digital economy that enables the rapid development of e-commerce and generates diverse new industries, changing traditional employment patterns and enhancing the marketability of industries. Finally, the convenience of information exchange and the popularity of online platforms make it easier for labor resources to cross regions and industries, thus improving the flexibility of coordinated industrial development [32].

Quality change is the main part of high-quality economic development. It aims to improve the quality and efficiency of output from the supply-side reform, boost the all-round quality improvement in various fields, such as production and distribution, realize the multi-dimensional optimization of industrial structure, narrow the development gap between regions, achieve sustainable development, and help the economy move towards high quality and efficient growth. The path of regional digitization to quality change is mainly reflected in the increase in the level of regional digitization, enabling the integration of information, data, and other elements into the structural cycle on the supply and demand side. The data elements are characterized by fast dissemination and easy penetration. Furthermore, digital information technology and production factors are integrated, and in the process of integration, they are upgraded to achieve symbiosis and complete the upgrading and iteration of traditional factors. On the one hand, the traditional industrial model of digital empowerment promotes upgrading industrial structure through cost saving, economies of scale, accurate allocation, efficiency improvement, and innovative empowerment [33].

On the other hand, data elements are digitally integrated with various industries in society, giving rise to new digital economy forms, further increasing effective supply, and optimizing the quality of the supply system, thus generating a strong boost to economic development [34,35]. Furthermore, the optimization and upgrading of industrial structure imply an improving output quality and the evolution of industrial structure to rationalization and advancement [36]. Moreover, the digital government also provides technical support for government supervision, reduces the possibility of the law of expelling good money from bad money, and improves the quality of product supply [37].

Efficiency change is the main line of high-quality economic development. Efficiency change means improving the total factor productivity of the supply and demand systems that influence economic and social development through innovation-driven development, thus achieving high-quality development in various fields [38]. The efficiency improvement of production, market, and coordination is a specific interpretation of efficiency change. Furthermore, the rapid advancement of digitization improves production, distribution, allocation, and sales efficiency in various industries through digital empowerment, further reducing production costs and waste of resources [39]. However, digital and technological innovations drive production intelligence. The convergence and permeability of data elements significantly improve the efficiency of firm R&D, production, manufacturing, and sales activities, ultimately improving the efficiency of firm operations and management efficiency and achieving the goal of using data processes to drive firms’ digital transformation.

Furthermore, the combination of digital technology and market mechanisms drives market efficiency, making market information exchange faster and more frequent, reducing the difficulty of converting ownership of goods and services, and further enhancing market matching efficiency, differentiated demand identification, and management capabilities. Digital technology integrates all kinds of factor resources in the digital network. With the spillover and synergy characteristics of digital technology, each factor can realize resource integration and sharing, improve the synergy efficiency, and thus improve high-quality development efficiency.

Power change is the cornerstone for high-quality economic development. Power change mainly includes talent support, innovation and entrepreneurship development, investment, and consumption. First, from the perspective of new factors of production, the cultivation of human capital is the core of the cultivation of new power of economic development. High-quality economic development cannot be achieved without talent cultivation. Endogenous growth theory states that accumulating knowledge and experience empowers human capital to innovate technology. The rapid development of new communication technologies, such as the internet, makes it easier for labor to access learning resources and employment information, alleviates the information asymmetry between employers and employees, reduces the degree of mismatch of labor resources, optimizes the allocation of labor resources, and provides talent support for power change [40]. Second, for entrepreneurs, improving the regional digital level can effectively meet the information needs of entrepreneurs. The development of digital finance, for example, also eases the financing pressure of entrepreneurship and enhances regional entrepreneurial activity [41]. Finally, improving the city’s digitalization level enhances its competitiveness, making attracting talent and foreign investment easier. Accumulating human resources and foreign investment can enhance the intrinsic drive for high-quality economic development [42]. Accordingly, regional digitalization promotes high-quality economic development from quality, efficiency, and power change. Based on the above discussions, the study proposes the following research hypotheses:

H1. 

Regional digitization can drive high-quality economic development.

H1a. 

Regional digitization can drive high-quality economic development through quality change.

H1b. 

Regional digitization can drive high-quality economic development through efficiency change.

H1c. 

Regional digitization can drive high-quality economic development through power change.

3.2. Moderating Effect of Effective Market and Government Governance

The Chinese government, in 2020, proposed to “adhere to and improve the basic socialist economic system, give full play to the decisive role of the market in the allocation of resources, better play the role of government, and promote a better combination of effective market and government governance“. A good market environment directly influences regional digital development through factor and product markets. China’s market-oriented reforms are deepening, and the allocation of resources is gradually changing from market-assisted to market-led. In regions with a high level of digitization, the market was able to provide an “enabler” for knowledge sharing and spillovers driven by the digital economy, and the “institutional reform dividend” generated by market-based reforms became an important factor in promoting high-quality economic development.

The efficient markets help develop factor markets, promote efficient and rational allocation of production factors, including human, capital, and technology, and thus promote the region’s digital development [43]. Specifically, the market should be allowed to play a decisive role in allocating resources, fully mobilizing the creativity of all market players and the enthusiasm for production factors so that all sources of wealth creation can flow. Factor markets are highly developed in regions with a high degree of marketization. They can allocate digital factors from inefficient to efficient sectors through the “invisible hand”, thus enhancing allocation efficiency and innovation performance. Moreover, the effective market is the driving force of regional digitalization for high-quality economic development, aiming to make market transactions more efficient through continuous improvement of institutional constraints, such as the negative list system for market access and competition mechanisms while maximizing the operation of market players in the digitalization process, thus promoting the quality of products and services. Accordingly, regions with a high level of marketization have more efficient factor flows, i.e., effective markets achieve an efficient allocation of resources through the “invisible hand”, which promotes the diffusion of digital technology and accelerates high-quality economic development.

Prior studies illustrate that there are two indicators for proactive government governance. First is transforming functions that actively serve the effective markets and do not act indiscriminately. Second, it focuses on coordination and takes the initiative [44]. Promoting high-quality economic development primarily relies on the market mechanism, with firms as the main participators. Still, the role played by the government in this process cannot be ignored. The role of the government in promoting the process of high-quality economic development is mainly reflected in the two aspects.

On the one hand, the government can create and maintain a rule of law environment and a friendly regulatory environment for harmonious economic development and remove the blocks that hinder market development through scientific and administrative means. On the other hand, it is in innovative public goods, in areas with externalities and monopolies, that it plays a leading role [45]. Due to the “profit-seeking” nature of the market, the development of digitalization requires a large amount of investment in construction, and the construction cycle is too long; if the market is allowed to allocate basic digital resources, it is easy to cause insufficient allocation of basic digital resources. This will hinder the digital transformation and upgrading of the region and is not conducive to promoting high-quality economic development. The government, as the main body of infrastructure investment, should play a role in compensating for the inadequacy of the market operation mechanism and use the “visible hand” to allocate basic digital resources reasonably. In digital evolution, the government supports regional digital establishment through institutional design, policy support, and financial support while using the necessary government regulation and control means to improve the market mechanism and system conducive to digital development.

Based on the above analysis, the study proposes the following research hypotheses:

H2. 

The effective market enhances the association between regional digitalization and high-quality economic development.

H3. 

Government governance enhances the association between regional digitalization and high-quality economic development.

4. Research Design

4.1. Data Source

Given the availability and completeness of the data, the study selects Chinese cities at the prefecture level and above from 2011 to 2018, with a total of 1944 observations. Data are from provincial and municipal statistical bulletins and the China Statistical Yearbook, with individual missing data collated manually from provincial and municipal statistical bureaus and the National Bureau of Statistics. Among them, the city innovation and entrepreneurship index is extracted from the open research data platform of Peking University. Tibet and Xinjiang are excluded due to some missing data. The sample data containing 237 cities are finally obtained. This study winsorizes all continuous variables by a 1% level to control for extreme data values.

4.2. Variable Definition

High-quality economic development (Hqd). Existing literature measures high-quality economic development mostly in terms of the consequences of economic development, such as total factor productivity [46]. However, there are shortcomings, such as imprecise measurement for total factor productivity, which cannot comprehensively measure high-quality economic development. Therefore, based on the existing literature [47,48,49,50], the study constructs a primary indicator based on the perspective of the “Main part-Main line-Cornerstone” of high-quality economic development and selects 20 secondary indicators based on the above theoretical analysis and standardizes the indicator to form the evaluation system of high-quality economic development. The definitions are shown in

Table 1. High-quality economic development measurement indicators.

Primary Indicators	Secondary Indicators	Calculation Method
Quality change	Industrial structure advanced index	The output of capital and technology-intensive industries/GDP
	Industrial structure rationalization index	Industrial structure deviation coefficient and Thiel index
	Industrial structure service index	Tertiary sector value-added/GDP
	Foreign trade dependence	The actual amount of foreign capital used in the current year USD million/regional GDP million
	Per capita disposable income	-
	Ecological cost	Industrial sulfur dioxide emissions tons/the city’s regional GDP of million yuan
		Industrial wastewater emissions million tons/city’s gross regional product million yuan
		Industrial smoke and dust emissions tons/city’s regional GDP million yuan
	The biochemical waste disposal rate	-
Efficiency change	Land output rate	GDP/administrative area
	Labor productivity	GDP/Practitioners
	Capital output rate	GDP/capital stock
	Green total factor productivity	Green total factor productivity formula
Power change	Innovation and entrepreneurial activity	City innovation and entrepreneurship index
	Science and technology expenditure to fiscal expenditure ratio	-
	The ratio of education spending to fiscal spending	-
	Per capita consumption expenditure	-
	Number of green patent applications	-

. Finally, the results are combined with the high-quality economic development indicator using principal component analysis. KMO = 0.818.

Regional digitization (Redi). There is no uniform standard for measuring the level of digitization of regions. Therefore, a single indicator cannot reflect the level of regional digitization. Following Li et al. [51], the study constructs a comprehensive index for measuring the digitization level of regions by digital infrastructure and financial inclusion level. Digital infrastructure mainly includes the rate of internet broadband access per 100 people, the total amount of telecommunication services per capita, the proportion of employees in the information transmission, software, and information technology service industry to the number of employees in urban units, and the number of cell phone subscribers per 100 people. The level of digital financial inclusion is measured using the Peking University digital financial inclusion index. The indicator’s weight is determined by principal component analysis to obtain the regional digitization indicators. KMO = 0.817.

To control for the effects of other factors on high-quality economic development, the study selects the degree of fiscal decentralization (dfde), the level of financial development (lfde), the total savings rate (tsr), the number of people in the region (pop), and the government financial status (gov) as the control variables, which are defined as shown in

Table 2. Variable definitions.

Type	Name	Code	Definition
Dependent variable	High-quality Development	Hqd	The results of principal component analysis of the data of indicators related to high-quality development.
	Quality change	Quch	The results of principal component analysis of data on indicators related to quality change.
	Efficiency change	Dych	The results of principal component analysis of data on indicators related to efficiency change.
	Power change	Efch	The results of principal component analysis of data on indicators related to power change.
Independent variable	Regional digitization	Redi	The data of digitalization-related indicators in the region are analyzed by principal component analysis.
Moderating variables	Effective Market	Efma	Combining relevant data of prefecture-level cities to measure the marketability index.
	Government Governance Effectiveness	Fgov	The result of the principal component analysis of relevant index data.
Control variables	Degree of fiscal decentralization	dfde	Fiscal budget revenue/Fiscal budget expenditure.
	Level of financial development	lfde	Year-end financial institutions’ loan balances/GDP..
	Total savings rate	tsr	Year-end balance of urban and rural residents’ savings/GDP
	Number of people in the region	pop	Natural logarithm of the total population at the end of the year.
	Government finance	gov	Local fiscal general budget revenue/GDP ratio.

. The study also controls for year and region effects.

Efficient market (Efma). An efficient market, i.e., a market with a sound legal system, transparent information, and fair competition, where factor resources flow fully under the market mechanism, thus promoting economic development. Based on Wang and Fan (2019) [52], the marketization index is measured by combining the relevant data of each prefecture-level city. The marketization index is used to characterize the effective market.

Government governance (Fgov). The promising government emphasizes a series of government support in the regional development process to help the healthy and stable development of the regional economy. The study uses principal component analysis to calculate government support. Therefore, the study adopts fiscal expenditure per capita, economic capital stock per capita, and the percentage of financial supporters as secondary indicators to measure government inputs, GDP per capita, consumption expenditure per resident, the year-end balance of urban and rural residents’ savings, and the number of beds in medical institutions per 10,000 people as government operation output variable, and uses principal component analysis to obtain the government governance effectiveness indicator. KMO = 0.843.

4.3. Model Design

To test H1, the study constructs the following model.

$$Hq{d}_{i,t}={\alpha }_0+{\alpha }_{1}Red{i}_{i,t}+{\alpha }_{2}Control{s}_{i,t}+{\mu }_i+{\delta }_i+{\epsilon }_{i,t}$$

(1)

where i is an individual city, t is the year, $Hq{d}_{i,t}$ is the dependent variable proxy for high-quality economic development, $Red{i}_{i,t}$ is the independent variable, the regional digitization indicator, $Control{s}_{i,t}$ represents a series of control variables, ${\mu }_i$ denotes the unobservable individual fixed effect of city i, ${\delta }_i$ controls the time-fixed effect, and ${\epsilon }_{i,t}$ denotes the random disturbance term.

The effective market and government governance in the regional digitization process are conducive to driving regional digitization and influencing high-quality economic development. Therefore, to verify H2 and H3, and also to explore the possible non-linear relationship between regional digitization and high-quality economic development, based on Equation (1), the study follows the panel threshold model proposed by Hansen (1999) [53] to construct a multi-threshold model with efficient market and government governance as threshold variables, and the threshold model is as follows:

$$\begin{gathered} Hq{d}_{i,t}={\beta }_0+{\beta }_{1}Red{i}_{i,t}\ast I(T_{i,t}\le {\gamma }_1)+{\beta }_{2}Red{i}_{i,t}\ast I({\gamma }_1\le T_{i,t}\le {\gamma }_2)+\dots \\ +{\beta }_{n}Red{i}_{i,t}\ast I({\gamma }_{n-1}<T_{i,t})+{\beta }_{c}Control{s}_{i,t}+{\mu }_i+{\delta }_i+{\epsilon }_{i,t} \end{gathered}$$

(2)

where $I(\dots )$ for the value of 1 or 0 for the indicator function, to meet the conditions in parentheses that is 1, otherwise, 0. $T_{i,t}$ is the threshold variable for the efficient market (Efma) and government governance (Fgov). ${\gamma }_n$ denotes the threshold value of the threshold variable. ${\beta }_1$, ${\beta }_2$, …, and ${\beta }_n$ are the regression coefficients of regional digitization on the threshold effect.

5. Empirical Analysis

5.1. Descriptive Statistics

Table 3. Descriptive statistics of variables.

Variables	Obs	Mean	Std. Dev.	Min	Max
Hqd	1944	−0.005	0.587	−0.988	2.330
Redi	1944	8.559	0.872	6.475	11.049
Efma	1944	11.399	2.104	6.836	16.316
Fgov	1944	−0.013	0.914	−1.177	3.564
Quch	1944	0	0.466	−1.126	1.230
Dych	1944	−0.009	0.746	−1.204	2.801
Efch	1944	−0.013	0.675	−1.381	2.271
dfde	1944	0.467	0.222	0.105	1.022
lfde	1944	0.944	0.530	0.302	3.152
tsr	1944	0.769	0.275	0.308	1.691
gov	1944	0.077	0.026	0.034	0.165
pop	1944	5.865	0.660	3.850	7.089

All variables as previously defined.

shows the results of descriptive statistics for the main variables. The maximum value of high-quality economic development (Hqd) is 2.33, the minimum value is −0.988, and the mean value is −0.005, indicating that China’s regional development is uneven. The average quality is not high. The minimum value of regional digitization (Redi) is 6.475. The maximum value is 11.049. Its value varies widely, indicating that the digitization level of different regions in China has large differences. The minimum value of the effective market (Efma) is 6.836, the maximum value is 16.316, and the mean value is 11.399. In China, the level of marketization varies widely from region to region. Government governance (Fgov) is characterized by a large difference between the mean and the maximum value. The mean value is low, indicating that government support varies widely across the sample regions and that Chinese government governance is relatively low. In terms of control variables, the degree of fiscal decentralization (dfde), the level of financial development (lfde), the total savings rate (tsr), the number of people in the region (pop), and the government finance (gov) also differ significantly across regions.

5.2. Empirical Results

The study first verifies the association between regional digitization and high-quality economic development.

Table 4. Empirical results of the relationship between regional digitalization and high-quality economic development.

	(1)	(2)
Variable	Hqd	Hqd
Redi	0.395 ***	0.302 ***
	(9.83)	(5.42)
dfde		1.021 ***
		(7.09)
lfde		0.104 *
		(1.70)
tsr		−0.159 ***
		(−2.11)
gov		−0.498
		(−0.56)
pop		−0.166 ***
		(−3.53)
Constant	−3.618 ***	−2.302 ***
	(−10.95)	(−9.17)
City-fixed effect	YES	YES
Year-fixed effect	YES	YES
Observation	1944	1944
R-squared	0.455	0.639

Standard errors are reported in parentheses. *** and * indicate that the regression results pass significance tests at 1% and 10%, respectively. All variables as previously defined.

reports the results of the association between regional digitization and high-quality economic development. Columns (1) and (2) show that the coefficient of regional digitization (Redi) is significantly positive at the 1% level regardless of the inclusion of control variables, i.e., regional digitization promotes high-quality economic development, and H1 is supported. On the one hand, the digital economy promotes the smooth flow of production factors, integrates social resources through the agglomeration effect, fully integrates data with resources, capital, technology, talents, and management, optimizes the social division of labor system, and promotes the expanded reproduction of society. On the other hand, the application of digitalization drives the transformation of industrial structure towards being information-intensive, knowledge-intensive, and technology-intensive, thus contributing to the improvement of total factor productivity [54]. In addition, column (2) shows that the regression coefficients of the degree of fiscal decentralization (dfde) and the level of financial development (lfde) on regional high-quality economic development are significantly positive, indicating that a high degree of fiscal decentralization and a developed financial market are conducive to regional high-quality economic development [55]. On the other hand, the coefficients of total savings rate (tsr) and the number of people in the region (pop) are negative and significant, indicating that too high a level of savings is not conducive to driving consumption growth. The demographic policy does not affect economic growth, probably due to the aging population, the increased pressure on regional social security, and the lack of economic development drivers [56].

5.3. Empirical Results

This study examines the mechanism for high-quality economic development from three aspects: quality change, efficiency change, and power change. Since these three aspects are included in the measurement of high-quality economic development, the impact of regional digitalization on the three major changes also inevitably causes the same change in high-quality economic development.

Table 5. Test of the mechanism of high-quality economic development.

	(1)	(2)	(3)
Variable	Quch	Dych	Efch
Redi	0.179 ***	0.361 ***	0.301 ***
	(5.94)	(5.09)	(3.60)
Constant	−1.924 ***	−5.398 ***	−1.778 ***
	(−9.25)	(−17.07)	(−4.13)
CV	YES	YES	YES
City-fixed effect	YES	YES	YES
Year-fixed effect	YES	YES	YES
Observation	1944	1944	1944
R-squared	0.491	0.670	0.180

Standard errors are reported in parentheses. *** indicates that the regression results pass significance tests at 1%. All variables as previously defined.

shows regression results. The regression coefficients of regional digitization on the three major changes are 0.179, 0.361, and 0.301, respectively, and all three major changes are significant at the 1% level, indicating that regional digitization significantly contributes to quality change, efficiency change, and power change, and H1a, H1b, and H1c are verified. Integrating digital technology and the three changes improves the supply efficiency and quality of products and services, boosts the digital upgrade of industrial structure, and enhances the driving force of high-quality economic development [57]. The empowerment of digital technology provides a brand new opportunity to improve total factor productivity, significantly enhancing the factor productivity of various industries by promoting industrial structure upgrading, optimal resource allocation, and organizational management innovation. The digital innovation factor becomes the new driving force, driving the economy towards the path of internal development through technological innovation and model innovation and continuously enhancing the power of industrial development.

5.4. Regional Heterogeneity Analysis

Considering the differences in development stages and resource endowments among different regions in China, the east and central regions are more economically developed than the western regions. To examine the impact of regional digitalization levels on the high-quality economic development of different cities, the study investigates three sub-samples of cities in the eastern, central, and western regions according to the location of the cities. As shown in

Table 6. Regional heterogeneity test.

	(1)	(2)	(3)
Region	Eastern	Central	Western
Redi	0.464 ***	0.155 ***	0.156 ***
	(6.22)	(2.76)	(2.87)
Constant	−3.817 ***	−1.812 ***	−1.177 ***
	(−8.70)	(−6.89)	(−2.44)
CV	YES	YES	YES
City-fixed effect	YES	YES	YES
Year-fixed effect	YES	YES	YES
Observation	696	688	560
R-squared	0.749	0.658	0.44

Standard errors are reported in parentheses. *** indicates that the regression results pass significance tests at 1%. All variables as previously defined.

, the regression coefficients of regional digitization are significant at the 1% level for the eastern, central, and western regions. Furthermore, the Chow test finds that the regression coefficient of regional digitization on high-quality economic development is 0.464, significantly higher in the eastern region than in the other two groups (eastern vs. central: Chow Chi2_digi = 27.61 ***; eastern vs. western: Chow Chi2_digi = 29.98 ***), indicating that the level of digitization in eastern cities has a more significant promotion effect. Each unit increase in digitalization level in the east is associated with a 0.463 unit increase in high-quality economic development. Possible reasons for this are the weak infrastructure and low level of digitization in China’s central and western regions. On the other hand, the relatively more diversified and well-resourced industries and an earlier and higher level of digitization in the eastern regions of China make the contribution of regional digitization to high-quality economic development greater.

5.5. Threshold Effect Analysis

The study uses effective market and government governance as threshold variables for the possible non-linear relationship between regional digitization and high-quality economic development. They analyze the threshold characteristics between them using a threshold model test. They are derived by the bootstrap method sampling 300 times to estimate threshold values and statistics. The results are shown in

Table 7. Threshold effect and threshold test results.

Threshold Variables	Model	Threshold Values	F-Value	p-Value	95% Confidence Interval	Number of BS
Efma	Single threshold	10.085	151.19	0.000	[10.085, 10.118]	300
	Double threshold	11.950	112.12	0.000	[11.947, 11.958]	300
	Three thresholds	13.857	85.37	0.803	[13.790, 13.860]	300
Fgov	Single threshold	−0.568	144.74	0.000	[−0.578, −0.569]	300
	Double threshold	−0.098	104.32	0.000	[−0.115, −0.098]	300
	Three thresholds	1.2504	76.46	0.823	[1.241, 1.260]	300

All variables as previously defined.

. Both effective market and government governance pass the double threshold effect test at a 1% significance level, with threshold values of 10.085 and 11.950 for effective market, and −0.568 and −0.098 for government governance, respectively. Accordingly, there is a threshold characteristic between regional digitalization and high-quality economic development.

According to the above threshold effects and values tests, there is a double threshold for efficient market and government governance. The double threshold model constructed by Equation (2) is analyzed empirically. The regression results of the threshold model are reported in

Table 8. Regression results of threshold effects.

Threshold Variable	Efma	Threshold Variable	Fgov
Redi (Efma < 10.133)	0.019 ***	Redi (Fgov < −0.568)	0.134 ***
	(4.39)		(5.47)
Redi (10.085 < Efma < 11.950)	0.132 *** (5.41)	Redi (−0.568 < Fgov < −0.098)	0.162 *** (6.72)
Redi (Efma > 11.950)	0.158 ***	Redi (Fgov > −0.098)	0.190 ***
	(6.55)		(7.81)
Constant	−2.047 **	Constant	3.497 ***
	(−2.29)		(−3.97)
CV	YES	CV	YES
City-fixed effect	YES	City-fixed effect	YES
Year-fixed effect	YES	Year-fixed effect	YES
Observation	1944	Observation	1944
R-squared	0.320	R-squared	0.318

Standard errors are reported in parentheses. *** and ** indicate that the regression results pass significance tests at 1% and 5%, respectively. All variables as previously defined.

. When the efficient market indicator is below the first threshold (10.085), the estimated coefficient of regional digitization is 0.109. With the effective market indicator passing the threshold twice, the estimated coefficient of regional digitization on high-quality economic development expands to 0.158. The threshold coefficients are all significant at the 1% level. In addition, the estimated coefficient of regional digitization is 0.134 when government governance is below the first threshold (−0.568). The estimated coefficient of regional digitization is further increased to 0.190 when government governance steps over the threshold twice, and the coefficients of the thresholds are all significant at the 1% level. The effectiveness of regional digitization in enhancing high-quality economic development is greatest when the second threshold is passed by effective market and government governance.

The above analysis reveals that under the threshold conditions of effective market and government governance, regional digitization has a significantly positive non-linear feature on high-quality economic development. The results suggest that the full play of effective market and government governance is a gradual process. With the continuous improvement and perfection of market mechanisms and government regulation, the role of regional digitalization in promoting high-quality economic development is gradually enhanced. H2 and H3 are verified. The full play of the role of the effective market to promote the continuous improvement of the market economy system, digitalization promotes more efficient and high-quality resource allocation. Based on the value and market competition law, backward and socially undemanded technologies and production capacities are eliminated. Social and economic resources become the digital economy form, reducing the cost of resource misallocation. The combination of digitalization and the real economy enhances the quality and efficiency of economic growth [58].

On the other hand, while the free development of the digital economy under the market mechanism is conducive to stimulating the innovation of market players, it may also form a highly concentrated market structure, such as some technology giants hindering the entry of other innovative market players by building competitive barriers, which is detrimental to market competition and innovation. Therefore, full play to the government’s regulatory role is conducive to removing obstacles to fair competition [59]. Therefore, the government should make full use of digital empowerment to develop a digital government, improve its service capacity for economic and social development, act as a coordinator for scientific planning, top-level design, and soft and hard facilities to support the promoting the regional digitalization process, promote a digital society, and make the regional digitalization for high-quality economic development.

5.6. Robustness Tests

There are differences in development speed and quality among provinces due to socio-historical development and locations. The digitalization of provinces with high levels of economic development is also faster, which makes the empirical tests of the study present endogeneity problems due to reverse causality. Therefore, the study further controls province-fixed effects and province–year interaction effects to mitigate the impact of external macro factors on regional digitalization development [60]. Columns (1) and (2) in

Table 9. Tests controlling for fixed effects and instrumental variable method.

	Controlling for Fixed Effects		Instrumental Variable Method
Variable	Hqd (1)	Hqd (2)	Redi (3)	Hqd (4)
Redi	0.383 ***	0.476 ***		1.129 ***
	(9.41)	(9.18)		(11.92)
Nulo			0.004 ***
			(11.22)
Constant	−3.278 ***	−2.483 ***	4.707 ***	−5.091 ***
	(−9.62)	(−9.56)	(18.21)	(−12.49)
CV	NO	YES	YES	YES
province-fixed effect	YES	YES	NO	NO
Province × years	YES	YES	NO	NO
City-fixed effect	YES	YES	YES	YES
Year-fixed effect	YES	YES	YES	YES
Observation	1944	1944	1944	1944
R-squared	0.579	0.685	0.823	0.423

Standard errors are reported in parentheses. *** indicates that the regression results pass significance tests at 1%. All variables as previously defined.

report the robust regression results.

For possible endogeneity, the study follows Jiao and Sun (2021) and uses the number of year-end landline telephone subscribers (Nulo) in each city as an instrumental variable for regional digitization [61]. The number of landline telephones shows the past communication infrastructure level. The past’s communication infrastructure still influences digital technology’s development in the future. At the same time, landline phones are used significantly less frequently with new communication tools to meet exclusivity. Column (3) in Table 9 shows a significant positive correlation between an instrumental variable and regional digitization. The coefficients of regional digitization in the second stage are all positive at the 1% level, consistent with the baseline results.

The study follows Hu et al. (2020) [62] and adopts the TOPSIS method to remeasure high-quality economic development. The regression results are in columns (1) and (2) in

Table 10. TOPSIS method and control reverse causality test.

	TOPSIS Method		Control Reverse Causality Test
Variable	Hqd (1)	Hqd (2)	Hqd (3)	Hqd (4)
Redi	0.059 ***	0.02 **
	(9.83)	(2.25)
L.Redi			0.310 ***
			(5.62)
L2.Redi				0.303 ***
				(5.71)
Constant	−0.171 ***	0.037	−2.270 ***	−2.236 ***
	(−3.30)	(0.54)	(−8.84)	(−8.59)
CV	NO	YES	YES	YES
City-fixed effect	YES	YES	YES	YES
Year-fixed effect	YES	YES	YES	YES
Observation	1944	1944	1701	1458
R-squared	0.494	0.558	0.626	0.608

Standard errors are reported in parentheses. *** and ** indicate that the regression results pass significance tests at 1% and 5%, respectively. All variables as previously defined.

. The coefficients of high-quality economic development (Hqd) are all significantly positive, consistent with the main regression results.

There may be a reverse causality because high-quality economic development drives the region’s digitization. Therefore, the study lags the regional digitization (Redi) by one and two periods to verify the robustness of the results. The results are shown in columns (3) and (4) in Table 10, where the independent variables are all significantly positive at the 1% level. The results are robust.

To more robustly examine whether the level of regional digitization contributed to high-quality economic development, this study uses the network infrastructure upgrade of the “Broadband China” pilot as an exogenous policy shock to assess this reality using a difference-in-difference (DID) method. On the one hand, the digitalization level of the region cannot be improved without the construction of digital infrastructure network facilities. On the other hand, the pilot policy of “Broadband China” can provide a good research scenario for quasi-natural experiments. In this study, the Ministry of Industry and Information Technology and the National Development and Reform Commission selected 120 cities (clusters) as “Broadband China” demonstration sites in three batches in 2014, 2015, and 2016. The inclusion of cities in the demonstration site cities was used as a dummy variable for policy grouping. If the city is a “Broadband China” demonstration city, the treat is assigned to 1. Otherwise, it is 0. The regressions further control for area-fixed effects ${\mu }_i$ and time-fixed effects ${\delta }_t$. Since heterogeneity bias may exist between the treatment and control group cities due to other unobservable factors, this study matches the demonstration site cities with their sample cities with similar characteristics but not included in the policy pilot by the propensity score matching method (PSM), using the control variables in the model (1) as matching variables for 1:1 nearest neighbor matching before using the DID model for testing.

The following multi-period DID model was set up to test whether the “Broadband China” pilot contributed to the high-quality economic development of cities.

$$Hq{d}_{i,t}={\alpha }_0+{\alpha }_{1}trea{t}_{i,t}+{\alpha }_{2}Control{s}_{i,t}+{\mu }_i+{\delta }_t+{\epsilon }_{i,t}$$

(3)

Table 11. PSM-DID model results.

	(1)	(2)
Variable	Hqd	Hqd
treat	0.212 ***	0.148 ***
	(3.56)	(3.97)
_cons	−0.457 ***	−1.040 ***
	(−12.79)	(−5.64)
CV	NO	YES
City fixed	YES	YES
Year fixed	YES	YES
CV	NO	YES
Observations	1840	1840
R-squared	0.515	0.481

Standard errors are reported in parentheses. *** indicates that the regression results pass significance tests at 1%. All variables as previously defined.

reports the results of the PSM-DID regression, where the regression coefficient of the treat is significantly positive at the 1% level, a result that further supports the empirical findings of this study.

6. Discussion

This paper selects data from a sample of 237 cities in China from 2011 to 2018, uses a panel data econometric model to explore the impact of regional digitalization on high-quality economic development, and applies a panel threshold model to examine the moderating mechanisms between efficient markets and active governments on both. Compared to the existing literature, the possible marginal contributions of this paper are: ① Defining the connotation of high-quality economic development based on the institutional context with Chinese characteristics and expanding the research related to high-quality economic development. ② This paper not only helps to reveal the mechanism of digitalization affecting high-quality economic development in theory but also provides a scientific basis for using digitalization to promote high-quality economic development in China in practice. ③ Explore the role of government support and market-based reforms in the relationship between regional digitalization and high-quality economic development, and provide empirical support for the role of pro-government and effective markets in high-quality regional development.

The study’s shortcomings include that a deeper path test on regional digitalization and high-quality economic development is not carried out due to data availability and measurement complexity. However, future research can be improved after much data are used for in-depth exploration. Other extension studies possibly include examining the impact of regional digitization on micro-business entities. For example, exploring whether regional digitalization can promote corporate social responsibility implementation and the moderating role of the regional institutional environment between the two.

7. Conclusions and Implication

The study examines the non-linear relationship between regional digitization and high-quality economic development using city-level data from 2011 to 2018 in China, constructing multi-dimensional indicators related to regional digitization and high-quality economic development and introducing effective market and government governance as threshold variables. The results show that the level of regional digitization can significantly contribute to high-quality urban development. Furthermore, digitalization can create new growth momentum to achieve high-quality economic development by promoting quality, efficiency, and power change. Furthermore, effective market and government governance have a significantly enhanced role in the digitization of regions for high-quality economic development. Specifically, efficient markets facilitate the efficient allocation of production factors and improve supply. On the other hand, government governance improves regional digitalization by increasing the construction of regional digital infrastructure and policy support. At the same time, the digital government can also improve its service capacity and contribute to high-quality regional economic development.

Promoting high-quality economic development, taking advantage of digital opportunities, promoting digital upgrading in various fields, and shaping new regional competitive advantages are urgent issues. There are three policy implications in this study. First, digitalization can become a new driving force for high-quality economic development, increasing investment in the internet and promoting the construction of digital China. Therefore, regions should vigorously build digitization-related infrastructure development, consolidate regional digital support elements, support the high-quality development of the digital economy, and further consolidate the advantages of the dividends that information technology brings to high-quality development. Second, give full play to the role of effective market and government governance through the strategy of control, policy guidance, financial support, and other measures to improve the region.

On the other hand, the government should make full use of digital empowerment to improve the effectiveness of government governance, formulate corresponding digital development strategies, and strengthen the construction of digital infrastructure to escort the digitalization of the region for high-quality economic development. Thirdly, consideration of the positive effects of digitalization on the high-quality economic development of cities in the Midwest is not yet deepened, which signals that a dynamic and differentiated digital economy strategy should be implemented. Finally, for the central and western regions to improve their development through digital technology, it is necessary to increase the government’s financial support, technical support, and supervision, continuously optimize the political and business environment, and attract talents and excellent enterprises to the region, so that digitalization can become a “hardware” technical support to effectively reduce regional development imbalances and create conditions for high-quality economic development in the western regions.