The Impact of Digital Economy on Middle-Income Groups: An Empirical Study in China

Abstract

This paper explores the impact and mechanism of the digital economy on middle-income groups. In theory, the digital economy can empower middle-income groups by increasing entrepreneurial activity. Empirically, based on the data of CFPS database from 2010 to 2018, this paper measures the proportion of middle-income groups and the development level of digital economy in 25 provinces in China, uses the number of new registrations of private enterprises to describe the entrepreneurial activity, and established a two-way fixed effect model, intermediary mechanism model and heterogeneity analysis model to empirical analysis on this basis. It is found that the digital economy has a significant positive effect on middle-income groups and stimulating entrepreneurial activity is an important transmission mechanism for the digital economy to empower middle-income groups. When other factors remain unchanged, every 1 percentage point increase in the China’s digital economy development index, the proportion of middle-income groups will increase by 0.14%, and the entrepreneurial activity will increase by 0.097%. Further studies have found that significant heterogeneity exists in the effect of middle-income groups empowering middle-income groups. The higher level of digital economy development, the lower impact on middle-income groups, which has the characteristics of diminishing marginal effects.