Digital economy agglomeration and energy efficiency gain: evidence from China

This study develops a stylized theoretical model to analyze how digital economy agglomeration affects energy efficiency. Then, we employ a two-way fixed effect model to identify the impact of digital economy agglomeration on energy efficiency. We find that a higher degree of digital economy agglomeration significantly increases a city’s energy efficiency. This result is robust when we address endogeneity concerns by exploiting a policy shock, geographic distance, and historical variation as instruments. We explore several explanations, including advancements in green technology, upgrading of industrial structures, and enhancements in public and governmental environmental concerns. Our findings provide evidence that substantiates each of these mechanisms. Our heterogeneous analysis indicates that the impact of digital economy agglomeration on energy efficiency is only significant in cities with higher attention to digitization, stricter environmental regulations, greater energy consumption, and better industrial development. This study provides the first city-level evidence of the relationship between digital economy agglomeration and energy efficiency, which has important implications for the energy transition in developing countries.