The Digital Economy and Sustainable Development Goals: A Predictive Analysis of the Interconnections Between Digitalization and Sustainability in China

This study empirically investigates the impact of the digital economy on sustainable development, with a particular focus on the mediating role of green innovation. Using panel data from 420 regional observations in China, we employ an advanced econometric panel including a two-way fixed effects model, mediation analysis, threshold regression, and instrumental variable (2SLS) techniques to address potential endogeneity. The findings confirm a significant positive direct relationship between the digital economy and sustainable development. Mediation analysis reveals that the digital economy fosters green innovation, which in turn drives sustainable development, accounting for about 17.12% of the total causal effect. A key novelty is our identification of a significant threshold effect: specifically, using a threshold model with 2SLS techniques, we find that sustainability benefits from digitalization are nonlinear and much higher in regions with higher institutional quality. Overall, this study advances the literature by moving beyond a simple direct link to reveal both the underlying causal mechanism and the contingent condition critical for nuanced policy insights.