Government innovation preferences, institutional fragility, and digital economic development

Abstract

Institutional fragility is an important factor influencing government innovation preferences and driving the development of the digital economy. This study incorporates institutional fragility into the effectiveness of government innovation preferences in driving the digital economy's development. Based on panel data from 30 provinces and regions in China from 2013 to 2021, a "vertical-horizontal" hierarchy method is used to assess the level of digital economic development. A fixed-effects model is applied to examine the impact and transmission mechanism of government innovation preferences on the digital economy. The study also analyzes the moderating effect of institutional fragility and threshold effects. The results are as follows: (1) Digital economic development exhibits an "East high-West low" development pattern, with the boundary line becoming more distinct over time. (2) Government innovation preferences significantly positively influence digital economic development, with a more pronounced effect in the western regions. Overall, a 1 % increase in government innovation preferences results in an average 2.041 % increase in digital economic development, with regional innovation capacity playing a partial mediating role. (3) Institutional fragility negatively moderates the effect of government innovation preferences on the digital economy, and there is a dual-threshold effect. As institutional fragility eases, the driving force of government innovation preferences shows a stepwise upward trend.