Exploring the Mechanisms and Spatial Effects of the Digital Economy on China's Economic Transformation and Development

ABSTRACT The rapid development of the digital economy (DIE) has significantly driven the transformation of China's economic structure. This study utilises panel data from 283 prefecture‐level cities in China between 2007 and 2022, applying econometric methods including bidirectional fixed effects models, instrumental variable methods, and spatial econometrics models to meticulously examine the stimulating effect of DIE on economic transformation and development (ETD) in China and its potential mechanisms. The results robustly indicate that, after addressing endogeneity and conducting multiple robustness tests, the promoting effect of DIE on China's ETD remains significant. Mechanism model analysis reveals that the enhancement of resource allocation efficiency, the strengthening of green low‐carbon technology innovation, and the upgrading of industrial structure are the primary pathways through which DIE fosters China's ETD. Heterogeneity analysis shows that while DIE significantly promotes ETD in the eastern, central, and western regions, its impact is most prominent in the eastern region. Furthermore, hierarchical analysis by city level indicates that DIE has a positive effect on cities at all levels, with the impact ranking as follows: first‐tier cities > second‐ and third‐tier cities > fourth‐ and fifth‐tier cities. The application of spatial econometric models further reveals that DIE can promote ETD through spatial spillover effects. This study not only enriches the understanding of the relationship between DIE and ETD but also provides valuable insights for policymakers in formulating economic and green social transformation policies.