Shaping sustainability: Circular economy development through digital technology innovation

Digital technology innovation has become a key driver of sustainable development, but its impact on the circular economy has been little explored theoretically or empirically. This study uses panel data from 279 cities in China from 2011 to 2022 to measure the circular economy development index in four key dimensions: production systems, living systems, development momentum, and development benefits. Combining panel fixed effect, mediation effect, spatial econometric, and threshold models, we quantify the mechanism of the impact of digital technology innovation on the circular economy and analyze its spatial spillover effects. The results show that digital technology innovation significantly promotes the development of the circular economy in Chinese cities by reducing energy consumption intensity and promoting industrial structure upgrading. Moreover, digital technology innovation has a spatial spillover effect on the circular economy and promotes the development of the circular economy in surrounding cities through the “demonstration effect.” Heterogeneity analysis of geographical location and resource endowment shows that digital technology innovation plays the most significant role in promoting the circular economy in eastern, central, and non-resource-based cities. In addition, with digital technology innovation and natural resource dependence as threshold variables, the impact of digital technology innovation on the circular economy shows the characteristics of a U-shaped relationship and a marginal decline, respectively. These findings have multiple theoretical implications. Our support for a broad framework for comprehensively evaluating the impact of digital technology innovation on circular economy development makes a significant contribution to the literature on digital technology and the circular economy. This study emphasizes the digitalization of urban sustainable development and provides practical guidance for policymakers on implementing differentiated decisions related to the circular economy. The study explores relevant scholarly debate and provides valuable insights and a basis for cities to implement strategic decisions regarding the development of the circular economy.