THE IMPACT OF DIGITAL ECONOMY ON GREEN GROWTH OF SMEs: EFFECTS AND MECHANISMS

This study investigates the impact of the digital economy on the green growth of small and medium enterprises (SMEs). Using a panel dataset of 22,922 firm-year observations from Chinese listed SMEs for the period 2012–2022, we examine how a city-level digital economy index (DIGECO) influences firm-level Green Total Factor Productivity (GTFP). Employing panel fixed-effects models, our econometric analysis reveals that the digital economy significantly promotes SME green growth. We use mediation analysis to identify two crucial pathways for this effect: the digital economy enhances GTFP by accelerating enterprise digital transformation (DIG) and by stimulating green innovation (GREEN). These main findings prove robust after addressing potential endogeneity through a series of checks, including an instrumental variable (IV) approach and the Heckman two-stage model. Heterogeneity analysis further reveals that the impact is stronger in China’s developed Eastern region and for firms in non-heavily polluting industries. This research contributes firm-level evidence to the sustainable development literature, offering valuable insights for policymakers and SME managers. The results contribute to sustainable development literature by providing SME-level evidence on digital economy impacts and identifying specific mechanisms through which digital technologies promote environmental performance. These findings offer valuable insights for policymakers designing digital transformation initiatives and SME managers developing sustainability strategies.