Digital Economy Policy, Innovation Quality, and Total Factor Productivity: Evidence from China

Addressing the structural paradox of “high quantity, low quality” in patents is a fundamental challenge for emerging economies striving for high-quality development. Do digital economy regulations compel firms to strategically comply for subsidies, or do they authentically foster substantive technical innovation? This article utilizes A-share listed firms in China as a sample to explore this argument. It utilizes text analysis to develop micro-level indicators of digital economy policies and exploits the “Broadband China” technique as a quasi-natural experiment for robustness testing, thus addressing potential endogeneity concerns. The following conclusions were drawn from the research: Firstly, digital economy policies have been shown to have a significant impact on the quality of corporate innovation, thereby confirming the independent causal role of macro-institutional environments in driving substantive technological progress. Secondly, a complete evidence chain has been established, linking innovation outputs to productivity gains, thereby verifying that digital economy policies further propel substantial leaps in total factor productivity. Thirdly, it validates the dual pathways through which policies drive improvements in corporate innovation quality—resource replenishment and capability restructuring—while highlighting the decisive role of market logic in amplifying policy effectiveness. The present study elucidates the synergistic boundaries between digital economy policies and market mechanisms, providing micro-level evidence and governance insights for emerging economies to resolve the “innovation quality paradox” and achieve intensive growth.