Agglomeration of the Digital Services Industry and Digital Transformation: Evidence from China

ABSTRACTThis study examines the relationship between the agglomeration of the digital service industry (ADS) and listed companies' digital transformation in China. We analyze panel data from 282 prefecture-level cities and listed companies for 2010–2019. The results reveal that ADS has an indirect positive effect on listed companies' digital transformation by improving firms' innovation inputs and decreasing their operating costs. These findings hold after using instrumental variables to solve the endogeneity problem and conducting robustness tests. Digital services is the only producer service industry whose agglomeration influences listed companies' digital transformation. The impact of ADS on digital transformation is strongest in manufacturing, non-state-owned, and small and medium-sized enterprises.KEYWORDS: Agglomerationdigital service industrydigital transformationdigital economydigitalizationJEL: R11L21L80 Disclosure StatementNo potential conflict of interest was reported by the author(s).Data Availability StatementThe data that support the results of this study are all available in the public domain.Notes1. The following indicators are provincial-level data: output of mobile phones, output of integrated circuits, output of microcomputer equipment, length of long-distance optical cable lines, number of software industry enterprises, employees of information transmission computer services and software services, number of websites, number of web pages, internet penetration rate, mobile phone switch capacity, percentage of businesses with e-commerce transactions, and e-commerce sales.2. The following indicators are prefecture-level city data: the number of post offices or post offices at the end of the year, the number of users of fixed telephones at the end of the year, the income of postal services, the income of telecommunications services, the number of users of mobile phones at the end of the year, the employees of information transmission computer services and software services, and the number of internet broadband access users.Additional informationFundingThis work was supported by the National Social Science Foundation of China [No. 22ZDA043]; National Social Science Foundation of China [No. 21ZDA032]; National Social Science Youth Foundation of China [No. 19CJL018]; CUFE postgraduate students support program for the integration of research and teaching [No. 202225].