How digital technology, governance and behaviour shape better cities

Digitalization is reshaping cities, transforming the way people work, access services, and experience daily life. From smarter governance to cleaner environments, digital technologies are increasingly seen as a catalyst for creating urban spaces that are more liveable, sustainable, and inclusive.

A new study published in Sustainability and titled "Digital Economy Promotes the Improvement of Urban Living Environment: Evidence from Provincial Panel Data of China," zeroes in on how this transformation is unfolding in China. Based on data from 30 provinces between 2012 and 2022, the research examines the economic, social, and ecological pathways through which digitalisation improves city life, and the conditions under which its benefits are most pronounced.

The research not only establishes a robust link between digital economy growth and improvements in urban living conditions but also identifies the mechanisms driving these changes. It points to technological innovation, enhanced public governance, and shifts in resident behaviour as key transmission channels. 

How the digital economy translates into better urban environments

The study measures the urban living environment (ULenv) using a composite index spanning economic wellbeing, social services, and ecological health. Indicators range from income levels and public service availability to air quality and green space provision. The digital economy index incorporates metrics such as internet penetration, digital industry output, e-commerce adoption, digital inclusive finance, and R&D spending.

Results from fixed effects models, supported by quantile regression and instrumental variable techniques, show a consistent and statistically significant positive relationship between digitalisation and urban living standards. The effects are visible across the income and development spectrum, benefiting both less and more livable cities. The researchers note that the benefits are not confined to wealthier or technologically advanced areas, which underscores the broad potential of digitalisation as a driver of social and environmental progress.

The positive influence of the digital economy persists even after accounting for factors such as trade openness, government intervention, human capital, and scientific research investment. Interestingly, while trade openness generally supports livability, excessive government intervention can dampen improvements. Human capital shows mixed effects, enhancing urban living environments overall but, in some contexts, correlating negatively at lower livability levels.

Where the gains are most pronounced and why

The analysis reveals notable heterogeneity in the digital economy’s impact. In provinces with lower investment in industrial pollution control, digitalisation delivers stronger gains, suggesting that technology adoption can help offset deficiencies in traditional environmental governance. Similarly, in regions with looser environmental regulation, the incremental benefits of digitalisation are greater than in those with already strict regulatory frameworks, where the marginal room for improvement is smaller.

Regionally, eastern China outpaces the central and western provinces in leveraging digitalisation for urban livability gains. The authors attribute this to the east’s stronger industrial base, more advanced infrastructure, and greater integration capacity between digital technologies and real economy sectors. This advantage allows for faster adoption of innovations such as smart city platforms, digital public services, and green infrastructure management systems.

The mediation analysis confirms three mechanisms by which the digital economy improves urban environments. First, technological innovation enhances productivity and enables cleaner, more efficient resource use. Second, digital tools strengthen public governance by improving transparency, responsiveness, and service delivery. Third, resident behaviour shifts as digital platforms encourage more convenient, low-carbon lifestyles, from e-commerce logistics efficiency to the uptake of shared mobility services.

Policy actions to maximise digital benefits for urban livability

The findings lead to a series of targeted policy recommendations designed to deepen and broaden the digital economy’s positive impact. Foremost is the need to strengthen and regulate major internet platforms so that they align with national strategies and support small and medium-sized enterprises. The authors also stress the importance of accelerating the rollout of high-speed, secure, and low-carbon digital infrastructure, particularly in lagging central and western provinces, to bridge the regional divide.

Building a robust data-factor market emerges as another priority, with a focus on government data sharing, open access initiatives, intermediary institutions, sound rules, and secure cross-border data flows. The integration of digital technologies with the real economy is also critical, requiring support for SMEs and industrial clusters to adopt cloud services, data analytics, and intelligent upgrades.

Effective governance of the digital economy itself is equally vital. This includes clarifying platform responsibilities, adopting data-driven regulation, and promoting transparency to maintain public trust. The study also encourages deeper international cooperation, particularly through initiatives like the “Digital Silk Road,” to ensure that China remains connected to global digital and sustainability trends.

The authors caution, however, that the digital economy is not without risks. Potential negative externalities include e-waste generation, rising energy consumption from data centres, and data security vulnerabilities. Managing these risks will require coordinated regulation, investment in green technology, and continuous policy adaptation as the digital landscape evolves.