Advancing Equitable Rural Transformation: How Digital Innovation Affects Urban–Rural Income Inequality

ABSTRACT Urban–rural income inequality remains a persistent global challenge. In the digital economy era, the reallocation of production factors driven by digital innovation exerts a significant influence on this disparity. However, the existing literature lacks a comprehensive and integrated discussion of this issue. To address this gap, this paper provides a systematic review of the research examining how the digital innovation shapes urban–rural income inequality. We focus on three core components: digital technology application, digital infrastructure construction, and digital financial services. Firstly, digital technology influences income distribution by differentially affecting the earnings of high‐skilled and low‐skilled labor. This occurs through four channels: productivity enhancement, job displacement, new job creation, and industrial restructuring. Secondly, digital infrastructure development affects the urban–rural income gap by narrowing information asymmetries, altering transaction costs, and fostering digital human capital accumulation. Thirdly, digital finance reduces inequality primarily by extending formal financial services to previously excluded rural populations. Based on these insights, the paper also concludes with policy‐oriented observations on how to harness the digital economy to mitigate urban–rural income disparities.