<p>Most previous studies used fixed panel regression methods to qualitatively and statically explore the relationship between the digital economy and total factor productivity. To quantitatively measure and dynamically deduce the causal relationship, we used a stochastic frontier full empowerment effect model based on panel data from 2010 to 2022 at the city level in China. By applying the counterfactual analysis method, we innovatively incorporated the digital economy into the production function and total factor productivity measurement model and quantitatively measured and dynamically deduced the empowerment effect of the digital economy on urban total factor productivity under multiple paths. The results showed that: (1) From the perspective of the empowerment effect, the development of the digital economy is generally beneficial to the improvement of urban total factor productivity, but there is an inverted “U” relationship between the two. (2) From the perspective of the empowerment path, China’s digital economy only has a significant effect on the improvement of technical efficiency, which is mainly characterized by improving management level and optimizing resource allocation methods but has limited empowerment effect on technological progress, which is mainly characterized by improving the absolute technological level of cities. (3) From the perspective of the transmission mechanism, the digital economy has a suppressing and destructive effect on the rationality of China’s industrial structure. The current impact of China’s industrial structure has hindered the promotion effect of the digital economy on total factor productivity to a certain extent.</p>