How does the digital economy affect value-added in China? Dual perspectives from digital demand and supply

The Digital Economy (DE) has dramatically changed our lives and economies. However, few have systematically quantified the economic impact of DE. To this end, we propose a systematic input-output framework to analyse the economic impact of DE. We detangle the intertwined relations between digital sectors and upstream and downstream sectors by evaluating the embodied and enabled value-added. Then we use the structural path analysis to find the core transmission paths between the digital and upstream and downstream sectors. Further, we use the structural decomposition analysis to determine the main drivers of DE affecting the embodied and enabled value-added. Our findings are as follows. First, the digital sectors have significantly driven the value-added of upstream and downstream sectors. Second, there is heterogeneity in the roles of the digital device and service sectors. Third, on the value-added path, The Other services sector is the non-digital sector, which is closely related to the digital sectors. Finally, the expanding digital demand and primary input are the major driving forces for China’s rapid digital-embodied and digital-enabled value-added growth.