The impact of digitalization on the rich and the poor: Digital divide or digital inclusion?

Abstract

With the spread of digitization and regional economic imbalances brought about by industrial structure transformation, the income gap between urban and rural areas in China is increasing and the gap between rich and poor should be considered. Using county-level panel data from 2015 to 2019 in China, this paper first analyzes the overall impact of digital development on the wealth gap and the impact for different sub-points of the sample from the direct effect perspective. Then, it explores the intrinsic mechanism of digital development in migrating the wealth gap from the indirect effect perspective, focusing on industrial structure and consumer spending. The results of the study show that the level of digital development is negatively correlated with the rich-poor gap. When digital development is at a high level, it suppresses the rich-poor gap, and the suppression effect gradually increases. In addition, the impact of digital development on wealth gap is not limited to direct effects but is also manifested indirectly through changes in industrial structure and consumer spending. Within this context, industry structure upgrading, guided by both market and government forces, plays a positive role in narrowing the wealth gap as modifiable mediating variables. Government-led upgrading in industrial structure demonstrates a more comprehensive moderating effect on addressing wealth disparities within the context of digitalization.