The Impact of Digital Economy on Sustainable Development through Industrial Agglomeration: A Study from China

The rapid advancement of information technology has significantly integrated the digital and real economies, creating new momentum for sustainable development. An empirical study from China, conducted by researchers from various institutes and departments, including the Department of Logistics Management and Engineering at Nanning Normal University, the Guangxi Key Lab of Human-machine Interaction and Intelligent Decision, the Department of Economics and Management at Nanning Normal University, and the School of Business at Guangzhou College of Technology and Business, investigates the relationship between the digital economy, industrial agglomeration, and sustainable development. Using models like the Cobb-Douglas production function and time-fixed effects, the study finds that the digital economy positively impacts sustainable development, primarily through industrial agglomeration.

Industrial Agglomeration and Sustainable Development in China

China's rapid economic growth has led to increased energy consumption and carbon emissions, presenting substantial challenges to sustainable development. The nation aims to achieve peak carbon dioxide emissions by 2030 and carbon neutrality by 2060, emphasizing sustainable growth. The digital economy is seen as a crucial driver in this transition, promoting efficient resource use and economic transformation. The study reveals that industrial agglomeration, where industries cluster together, plays a significant role in enhancing the benefits of the digital economy for sustainable development. However, it also finds an inverted U-shaped relationship between the digital economy and industrial agglomeration, indicating that while initial digital economic growth fosters industrial clustering, beyond a certain point, it disperses industrial activities. This dynamic suggests that policymakers need to balance the promotion of industrial agglomeration with strategies to mitigate its potential downsides, such as urban congestion and regional disparities.

Optimizing Production and Reducing Pollution

The digital economy optimizes production structures by using modern information technology to integrate data into production processes, resulting in more efficient resource allocation and improved economic structures. Additionally, it accelerates industrial transformation and upgrading, reducing environmental pollution caused by traditional industries. The study notes that the digital economy's positive impact is more pronounced in China's eastern and western regions compared to the northeastern and central areas. This discrepancy is attributed to varying levels of digital infrastructure and economic development, with traditional industries in the northeast and central regions lagging in digital transformation.

SHAP Insights on the Digital Economy

Using Shapley Additive Explanations (SHAP), the study quantifies the relationship between the digital economy and industrial agglomeration, reinforcing the finding of an inverted U-shaped relationship. Initially, the digital economy promotes industrial agglomeration by enhancing economies of scale and facilitating better supply and demand matching. However, as the digital economy matures, it reduces the need for physical proximity among industries, leading to a dispersal of industrial activities.

Pathways to Sustainable Digital Growth

The study recommends enhancing the digital economy through specialized and diversified industrial agglomerations, fostering digital infrastructure, and implementing comprehensive digital economy regulations. These steps aim to harness the full potential of digital advancements, ensuring they contribute to sustainable economic growth and environmental preservation. Policymakers are encouraged to support specific industrial clusters and develop legal frameworks that promote digital literacy, data privacy, and network security, thereby accelerating digital economy development and achieving sustainable goals.

One critical aspect highlighted is the role of specialized industrial agglomeration, which currently has a more significant impact on sustainable development than diversified agglomeration. Specialized clusters benefit from focused labor supply, stronger interconnections between related industries, and enhanced innovation and productivity. In contrast, the diversified agglomeration has untapped potential that, if realized, could further unlock digital dividends and drive broader economic growth.

Leveraging Digital Openness and Innovation

To mitigate the potential negative effects of excessive industrial agglomeration, such as urban congestion and environmental degradation, the study suggests leveraging the openness and sharing capabilities of the digital economy. This approach can help diffuse industrial activities across broader regions, alleviating pressure on specific areas and promoting more balanced regional development.

The study underscores the importance of a balanced approach to developing the digital economy. While fostering industrial agglomeration can significantly boost sustainable development, it is crucial to manage this growth to avoid adverse outcomes. Policymakers should focus on creating a supportive environment for digital and industrial innovation, ensuring comprehensive regulations are in place to address challenges such as the digital divide, data privacy, and cybersecurity.