Beyond connectivity: How digital economy shapes regional innovation?

This paper empirically examines how the development of the digital economy influences regional innovation capacity, utilizing panel data from 30 Chinese provinces over the period 2011–2023. Employing a dual fixed-effects model complemented by robust endogeneity corrections, including instrumental variable analysis, propensity score matching, and the Heckman selection approach, the study identifies a significant positive impact of digital economy development on regional innovation capacity. Additionally, mediation analysis indicates that R&D intensity partially mediates this relationship, highlighting intensified R&D activities as a key transmission mechanism. Furthermore, financial development and fiscal support significantly moderate the digital economy's effects, suggesting regions with deeper financial markets and proactive fiscal policies achieve greater innovation outcomes from digitalization. These findings provide crucial insights for policymakers aiming to enhance regional innovation capabilities through integrated strategies involving digital infrastructure investment, strengthened financial institutions, and supportive fiscal interventions.