Nonlinear Effect of Digital Economy on Urban-Rural Consumption Gap: Evidence from a Dynamic Panel Threshold Analysis

Reducing the disparity in consumption between urban and rural areas, as a critical component in mitigating the economic imbalance between them, holds significant importance in enhancing people's sense of well-being and achieving collective prosperity. This research investigated the nonlinear impact of the digital economy and its sub-dimensions, including digital industrialization, industrial digitization, and the digital environment, on the urban-rural consumption disparity. We employed a systematic GMM and a dynamic panel threshold regression model and utilized dynamic panel data from 30 provinces in China. Our research reveals that the impact of digital economic development on the urban-rural consumption gap displays an inverted U-shaped nonlinear relationship of widening and then narrowing. This effect is primarily determined by the process of digital industrialization. The digital economy exerts a notable impact on the urban-rural consumption gap, with significant threshold effects identified for the income gap, the education gap, and financial expenditure for livelihoods; these threshold effects exhibit variation across the three sub-dimensions of the digital economy. Further analysis reveals that the digital economy plays a vital role in reducing the disparity between urban and rural hedonic and developmental consumption, while promoting the optimization and upgrading of consumption structure. Upon accounting for regional disparities in urbanization rates, it has been observed that the digital economy's dampening effect on the urban-rural consumption gap is notably more pronounced in areas with lower rates of urbanization. To more effectively leverage the positive impact of the digital economy on bridging the urban-rural consumption divide, it is recommended that the government accelerate the establishment of a digital environment in rural areas, encourage the integration of digital industries with traditional rural industries, and optimize the investment structure of livelihood-based finance. These measures would help to create a more conducive environment for the digital economy to thrive and could contribute to narrowing the consumption gap between urban and rural areas.