Digital Economy, International Openness, and Innovation Capability: Empirical Evidence from Urban China

Using urban panel data from 2011 to 2019 in China, this study employs various econometric models to analyze the impact and mechanism of digital economy (DE) development on urban innovation capabilities. The empirical results show that DE development significantly bolsters urban innovation in China, a finding that remains consistent even after conducting rigorous robustness tests, such as using historical data as instrumental variables. Importantly, an analysis using the spatial Durbin model reveals a positive spatial spillover effect—DE development in one city enhancing innovation capabilities in neighboring cities. This effect not only diminishes the regional innovation gap but also stimulates regional coordinated innovation. The study also illustrates that a city’s degree of international openness enhances the positive impact of DE development on urban innovation capabilities. This highlights that promoting regional openness is an important mechanism to facilitate the beneficial effect of DE development on urban innovation capabilities. Providing both theoretical foundation and empirical evidence for the impact of DE development, this paper contributes valuable insights into promoting innovation-driven development via digital ecosystem empowerment, formulating differentiated DE strategies, and maximizing the spatial spillover effects of the DE.