How Digital-Economy Policy Boosts TFP: Evidence and Quadruple Mechanisms from China’s Manufacturing Sector

Wenwen Yu, Qiyuan Fan and Jiajun Liu ()
Additional contact information
Wenwen Yu: Department of Economics and Commerce Studies of North East Asia, Graduate School, Pai Chai University, Daejeon 35345, Republic of Korea
Qiyuan Fan: Department of Economics and Commerce Studies of North East Asia, Graduate School, Pai Chai University, Daejeon 35345, Republic of Korea
Jiajun Liu: Department of Economics and Commerce Studies of North East Asia, Graduate School, Pai Chai University, Daejeon 35345, Republic of Korea

Sustainability, 2025, vol. 17, issue 22, 1-22

Abstract: Do China’s provincial digital-economy policies causally improve firm productivity and manufacturing sustainability? This paper addresses this question using a panel of Chinese manufacturers from 2008 to 2023. We first construct a novel, manually coded index of provincial policy intensity. We then use an instrumental-variable strategy, based on historical post-office density and governors’ STEM backgrounds, to identify causal effects. We find that digital-economy policy has a positive and significant impact on firm-level total factor productivity (TFP). Doubling the cumulative policy stock raises TFP by approximately 3%. This effect is transmitted through four key mechanisms: enhanced innovation quality, tax incentives, targeted digital subsidies, and knowledge spillovers. These channels support sustainable, innovation-led upgrading rather than mere input expansion. We also find the TFP gains are much larger in provinces with strong fiscal capacity and in firms with high digital absorptive capabilities. This paper contributes by providing clear causal evidence of the policy–TFP link and, crucially, by quantifying the four specific mechanisms that translate digital policy into durable, productivity-based sustainability in manufacturing.

Keywords: digital-economy policy; total factor productivity (TFP); causal inference; mechanisms of growth (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.mdpi.com/2071-1050/17/22/10164/pdf (application/pdf)
https://www.mdpi.com/2071-1050/17/22/10164/ (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:gam:jsusta:v:17:y:2025:i:22:p:10164-:d:1793993

Access Statistics for this article

Sustainability is currently edited by Ms. Alexandra Wu

More articles in Sustainability from MDPI
Bibliographic data for series maintained by MDPI Indexing Manager ().