Digital economy, agglomeration, and entrepreneurship in Chinese cities

Abstract

This study investigates the digital economy's influence on entrepreneurship and the role of economic agglomeration in its mechanism. Employing yearly prefecture-level city data from China (2011-2019) and panel econometric techniques, we show that the digital economy has a significant positive effect on entrepreneurship activity; this effect is maintained following endogeneity, alternative explanatory variable, sample composition, and other robustness checks. Regional heterogeneity analysis shows that the digital economy's impact was greatest on the western region, followed by the central and eastern regions. We also identify agglomeration-related channels (output and employment density) through which the digital economy promotes entrepreneurship.