To inhibit or to promote: How does the digital economy affect urban expansion in China?

Urban expansion poses persistent challenges to China’s sustainable spatial development. This study examines how the digital economy influences urban spatial dynamics by integrating theoretical and spatial–economic perspectives. Using panel data from 284 prefecture-level cities from 2007 to 2023, we construct multidimensional entropy-weighted indices for both digital-economy development and urban expansion. We employ a range of econometric models, including benchmark regressions, instrumental-variable estimation, mechanism tests, heterogeneity analysis, and spatial Durbin models. The results indicate that the digital economy has a significant impact on urban expansion, enhancing total factor productivity, stimulating innovation, and improving fintech efficiency. Extended heterogeneity tests reveal that this inhibitory effect is more potent in eastern and central regions, large and high-tier cities, and those with advanced network infrastructure, higher accessibility, and richer human capital. Moreover, spatial econometric analysis confirms that digitalization generates adverse spillover effects on neighboring cities’ expansion through technology diffusion, policy coordination, and factor-market channels, forming a regionally networked equilibrium. Robustness tests—including sample trimming, alternative dependent variables (remote sensing and NTL data), and leave-one-hub-out estimation—support these findings. Overall, digital transformation constrains inefficient urban sprawl and promotes compact, coordinated, and high-quality urbanization, offering empirical evidence and policy implications for sustainable spatial governance in the digital era.