Digital economy and China’s path to common prosperity

Abstract The digital economy has emerged as an important force driving China’s economic development. However, little is known about its income distributive impact. This issue is even important in the context of China’s path to common prosperity, in which reducing income inequality is essential. This study combines the “Broadband China” strategy as a proxy variable for digital economic development with data from the China Family Panel Studies (CFPS) and identifies a highly significant impact of digital economy development on household income growth through a Difference-in-Differences (DID) setting. Digital economy particularly promotes the income growth among rural residents which means that the digital economy will contribute to the common prosperity. Further analysis shows that the underlying mechanisms through which the digital economy helps achieving the common prosperity involve the stimulation of agricultural production among rural residents, facilitation of non-agricultural employment opportunities for rural residents, and promotion of financial investments within rural households. These findings underscore the pivotal role of the digital economy in narrowing the income gap between urban and rural residents and fostering common prosperity.