How digital transformation is driving green innovation across regional economies

The digital economy is often viewed as a growth accelerator, but its environmental footprint is increasingly scrutinized. With data centers expanding and digital industries scaling up, concerns about energy consumption and emissions have intensified. The researchers analyze whether digital transformation can improve ecological performance within complex regional economic systems.

Their study, Digital Economy Development and Ecological Efficiency: Analysis from a Regional Economic System Perspective, published in Systems, applies a systems-based analytical framework to provincial data spanning more than a decade. The results reveal that digital economy development significantly enhances ecological efficiency through green innovation and industrial optimization.

Digital economy emerges as a driver of ecological efficiency

The study constructs a multidimensional index to capture the level of digital economy development, incorporating digital infrastructure, digital industrialization, and the integration of digital technologies into traditional industries. Ecological efficiency is assessed using a model that accounts for labor, capital, and energy inputs alongside desirable economic output and undesirable environmental outputs such as wastewater discharge, sulfur dioxide emissions, and industrial solid waste.

The baseline results reveal that regions with higher levels of digital economy development achieve significantly better ecological efficiency outcomes. This relationship holds even after controlling for economic development level, industrial structure, foreign direct investment, environmental regulation intensity, government intervention, and human capital.

To ensure the findings are not driven by reverse causality or omitted variable bias, the researchers apply multiple robustness checks. Alternative measurement approaches, lagged variables, trimming of extreme values, and reconstruction of key indicators all confirm the stability of the positive relationship. Instrumental variable analysis using historical communication infrastructure and geographic terrain factors further strengthens causal interpretation.

The evidence indicates that digital transformation is not merely correlated with greener outcomes but actively contributes to improving environmental performance within regional economic systems.

Green innovation and industrial optimization as key channels

The study also investigates how digitalization improves ecological efficiency. Two major mechanisms emerge: green innovation and industrial structure optimization.

• Digital economy development significantly stimulates green technological innovation. The authors use green patent applications and green patent grants per capita as indicators of innovation output. Regions with stronger digital ecosystems show higher levels of green patent activity, suggesting that digital infrastructure facilitates research collaboration, improves information flow, and enhances resource allocation in innovation processes.
• Digital platforms reduce transaction costs and lower barriers to knowledge exchange, enabling firms to adopt cleaner technologies and more efficient production methods. By accelerating the diffusion of environmentally friendly innovations, digitalization contributes directly to pollution reduction and energy efficiency gains.
• Digital transformation enhances industrial structure rationalization. Rather than immediately shifting regional economies toward more advanced sectors, digitalization improves coordination and efficiency within existing industrial systems. By optimizing supply chains, improving logistics management, and enabling real-time monitoring of production processes, digital tools reduce resource misallocation and eliminate redundant energy consumption.

Interestingly, the study finds that while digitalization significantly improves structural rationalization, its short-term effect on structural advancement is limited. This indicates that digital transformation initially strengthens efficiency within current industries before driving broader structural upgrading.

The dual mechanism of innovation stimulation and structural optimization highlights that ecological benefits emerge from systemic efficiency improvements rather than simple sectoral substitution.

Environmental regulation and regional conditions shape outcomes

The study also uncovers a nonlinear relationship between environmental regulation intensity and the ecological benefits of digitalization. When regulatory pressure is weak, the positive impact of digital economy development on ecological efficiency is statistically insignificant. However, once regulation surpasses a critical threshold, digitalization’s effect becomes significantly stronger.

This finding suggests complementarity between digital transformation and regulatory enforcement. Strong environmental regulation creates incentives for firms to use digital technologies for compliance monitoring, emissions tracking, and cleaner production processes. Without sufficient regulatory pressure, digital investments may prioritize cost reduction and productivity without targeting environmental performance.

Regional heterogeneity further shapes outcomes. The ecological gains from digital economy development are more pronounced in regions with higher levels of economic development and stronger human capital bases. In economically advanced areas, digital tools are more effectively embedded into governance structures and production systems. Skilled labor enhances absorptive capacity, allowing firms to leverage digital technologies for green innovation.

In less developed regions, by contrast, the effect of digitalization on ecological efficiency is weaker or statistically insignificant. Limited infrastructure, lower education levels, and weaker institutional capacity may constrain the translation of digital inputs into sustainable outputs.

Broadband infrastructure emerges as another amplifying factor. Regions with higher broadband penetration experience stronger positive effects of digital economy development on ecological efficiency. Reliable connectivity enhances data sharing, accelerates technological diffusion, and supports digital governance initiatives that reinforce environmental oversight.

Digital transformation alone is not a guaranteed solution to environmental challenges, the study asserts. Its effectiveness depends on complementary institutional, economic, and infrastructural conditions.

Policy implications for digital and green transitions

Rather than treating digital growth and ecological protection as separate policy domains, the study suggests they can be mutually reinforcing when properly aligned.

• Strengthening digital infrastructure remains essential. Investments in broadband networks, cloud computing platforms, and industrial internet systems provide the technical foundation for green innovation and real-time environmental management.
• Environmental regulation must reach sufficient intensity to activate digital-green synergies. Weak enforcement limits incentives for firms to deploy digital tools for pollution control. Clear standards, consistent monitoring, and credible penalties create a framework within which digital technologies can deliver ecological dividends.
• Human capital development is critical. Education and skills training enable workers and managers to integrate digital technologies into production processes effectively. Without sufficient technical expertise, digital investments may fail to translate into measurable environmental improvements.
• Regional development strategies must account for heterogeneity. In less developed areas, targeted support may be required to build absorptive capacity and prevent widening disparities in digital and environmental performance.