Digital–real integration boosts inovation and industrial upgrading

While the overall impact of digital–real integration is positive, the study identifies significant regional heterogeneity in its effects. The eastern region of China shows the strongest and most statistically significant relationship between integration and high-quality development. This reflects the region’s advanced digital infrastructure, strong industrial base, higher levels of innovation, and early adoption of digital technologies.

Digital technologies are now deeply embedded in manufacturing, services, logistics, finance, and public administration. Yet questions remain about whether digitalization alone can translate into higher-quality economic outcomes, particularly across regions with unequal industrial bases and infrastructure. Evidence on how digital tools interact with traditional economic sectors at scale has been limited, especially from a long-term, region-wide perspective.

These issues are directly addressed in a study “How Can Digital–Real Integration Affect High-Quality Development of the Regional Economy? Evidence from China,” published in Sustainability. The study evaluates how the coordinated integration of the digital economy and the real economy influences high-quality regional development across China over a ten-year period.

Digital–real integration shows a strong and sustained growth effect

Rather than relying on single indicators, the authors construct composite indices using the entropy method to capture multiple dimensions of development. Digital economy indicators include digital infrastructure, digital industrialization, and the digital transformation of traditional industries, while the real economy index reflects industrial output, manufacturing capacity, and sectoral productivity.

To evaluate how closely these two systems develop together, the study applies a coupling coordination degree model, producing a Digital–Real Integration index. This index reflects not just parallel growth, but the degree to which digital technologies and real-economy activities reinforce each other in a coordinated manner.

Digital–real integration significantly promotes high-quality regional economic development. After controlling for human capital, infrastructure investment, environmental regulation, marketization level, and foreign direct investment, the results show that a one percent increase in digital–real integration corresponds to a 4.81 percent increase in high-quality development.

This effect remains robust across multiple model specifications, alternative variable constructions, and endogeneity tests. The results indicate that integration matters more than digital expansion alone. Regions where digital tools are deeply embedded into production, logistics, and industrial processes outperform those where digital growth remains disconnected from real economic activity.

High-quality development in the study is measured using a multidimensional index aligned with China’s Five New Development Concepts: innovation, coordination, green development, openness, and shared development. Digital–real integration positively affects all five dimensions, reinforcing the idea that integration delivers broad-based economic quality rather than narrow efficiency gains.

Regional disparities reveal uneven benefits and policy challenges

While the overall impact of digital–real integration is positive, the study identifies significant regional heterogeneity in its effects. The eastern region of China shows the strongest and most statistically significant relationship between integration and high-quality development. This reflects the region’s advanced digital infrastructure, strong industrial base, higher levels of innovation, and early adoption of digital technologies.

In western China, digital–real integration also has a positive and significant effect, though the magnitude is smaller. The study suggests that digital technologies can partially compensate for structural disadvantages in these regions by improving connectivity, reducing transaction costs, and enabling industrial leapfrogging.

In contrast, the central region shows no statistically significant impact. The authors link this outcome to structural bottlenecks, including weaker innovation capacity, slower industrial upgrading, and limited depth of digital integration within traditional industries. In these regions, digital development often remains superficial, focused on consumption or basic services rather than transformative industrial integration.

These findings highlight that digital–real integration is not an automatic equalizer. Its benefits depend heavily on complementary factors such as industrial structure, human capital, and institutional support. Regions with stronger foundations are better positioned to translate integration into high-quality growth, while lagging regions risk falling further behind without targeted policy intervention.

The study underscores the importance of differentiated regional strategies. A uniform national approach to digital development may widen disparities unless tailored to local economic conditions.

Innovation and industrial upgrading drive the integration effect

To explain how digital–real integration translates into higher-quality development, the study conducts a mechanism analysis focusing on two key channels: industrial structure upgrading and scientific and technological innovation.

The results show that integration significantly accelerates the shift from low-value, resource-intensive industries toward higher-value, technology-intensive sectors. Digital technologies enable smarter manufacturing, optimized supply chains, and data-driven decision-making, which improve productivity and reduce waste. This structural upgrading directly contributes to higher economic quality by increasing efficiency, resilience, and environmental performance.

Innovation emerges as a second critical channel. Digital–real integration increases research and development investment, improves knowledge diffusion, and enhances firms’ ability to absorb and apply new technologies. The study finds that regions with higher integration levels show stronger innovation performance, which in turn boosts high-quality development outcomes.

Beyond local effects, the study employs spatial econometric models to examine spillover effects. The findings show that digital–real integration in one region positively influences high-quality development in neighboring regions. These spillovers operate through technology diffusion, factor mobility, and interregional industrial cooperation, reinforcing the importance of coordinated regional policies.

The presence of spatial spillovers suggests that integration can support broader regional balance if supported by mechanisms that encourage cross-regional collaboration. Without such coordination, however, benefits may remain concentrated in already-advanced areas.

Policy implications for China’s next development phase

The study notes that digital development strategies must prioritize deep integration with the real economy, not just expansion of digital services or platforms. Digital infrastructure investment should be aligned with manufacturing, logistics, agriculture, and industrial upgrading priorities.

Second, the findings highlight the need to strengthen innovation ecosystems. Investment in research and development, talent cultivation, and digital skills training is essential to ensure that integration translates into sustainable productivity gains.

Third, the study calls for region-specific policies. Eastern regions should focus on refining and optimizing integration quality, while central regions require targeted support to overcome structural barriers. Western regions can leverage digital technologies to accelerate catch-up growth, provided infrastructure gaps are addressed.

Fourth, the identification of spatial spillovers supports policies that reduce regional fragmentation. Encouraging data sharing, industrial cooperation, and cross-regional digital platforms can amplify the benefits of integration beyond administrative boundaries.

The study further calls for institutional coordination. Effective digital–real integration requires alignment between industrial policy, digital governance, environmental regulation, and market reforms. Fragmented policymaking risks weakening the integration effect.