Digital economy development and the urban-rural income gap: Evidence from Chinese cities

The growth of the digital economy has created new forms of inequality of opportunity. This paper studies whether the development of the digital economy expands the income gap between urban and rural areas from theoretical and empirical. The research based on the panel data of 202 cities from 2011 to 2019 in China shows that: (1) Although the digital economy can promote the improvement of both urban and rural absolute income levels, it has a greater positive impact on urban residents’ income levels than on rural residents’, resulting in a widening of the urban-rural income gap. (2) The analysis of the action mechanism reveals that employment in the information service industry and the depth of digital finance use are two crucial mechanisms for the digital economy to widen the income gap between urban and rural areas. (3) The spatial Durbin model(SDM) and the spatial error model(SEM) based on three spatial weight matrices show that the impact of the digital economy on the urban-rural income gap is also characterized by spatial spillover, and the development of the digital economy will also have a negative impact on the urban-rural income gap in neighboring regions as well. (4) The main conclusions still hold after the robustness of quasi-natural experiments based on the strategy of "Broadband China" and the selection of historical data as instrumental variables. This research is helpful to understand the effects, mechanisms and spatial characteristics of digital economy on urban-rural income gap.