The impact of digital economy on urban-rural income disparity and its mechanisms: evidence from China

Despite the digital economy (Dig) has gained widespread recognition as a new engine driving economic growth, the mechanisms through which it affects the urban-rural income gap remain underexplored. Using panel data from 31 Chinese provinces from 2014 to 2023, this study systematically examines the impact of the Dig on the urban-rural income disparity and its underlying channels. The findings reveal a significant inverted U-shaped nonlinear relationship, indicating that the Dig may initially widen the income gap before eventually narrowing it as development deepens. Regional heterogeneity analysis shows that the Dig significantly reduces the income gap in eastern and central regions, whereas the opposite effect is observed in the western region due to inadequate digital infrastructure and lower digital literacy. Mechanism analysis indicates that the Dig mitigates the urban-rural income gap primarily by promoting employment substitution and optimizing the employment structure. Further spatial econometric analysis suggests that the Dig not only amplifies the income disparity within the region but also exacerbates it in neighbouring areas, with the spillover effect being more substantial than the local effect. This study provides a new theoretical perspective and policy reference for understanding the internal law of regional balanced development in the digital era.