1. Introduction
Innovation is the primary driving force driving the transformation and development of the economy. The theory of endogenous growth proposes that the economy cannot rely on external forces to achieve sustained growth and that its determining factor is endogenous technological progress [
1,
2]. Economists have since studied the endogenous origins of economic growth more thoroughly, and a large body of literature provides evidence of a causal relationship between innovation and economic growth [
3,
4]. Cities are the spatial carriers of innovation activities [
5], the gathering place of innovation resources and elements, and important places for knowledge creation and application [
6]. Therefore, building an innovative country cannot be separated from urban innovation. Releasing the vigor of urban innovation and improving the level of urban innovation are vital to cities playing basic and supportive roles in the construction of a national innovation system. As cities are innovation machines, exploring how to enhance urban innovation capability is of non-negligible meaning for countries around the world seeking to improve their innovation capability and enhance sustainable economic development [
7].
Smart cities underpinned by information and communications technology (ICT) are now an advanced form of urban development [
8,
9]. With the rapid progress of information technology, such as the Internet of Things (IoT), cloud computing and the Internet, smart cities have emerged, and countries around the world such as Switzerland, Norway, Australia, the United Kingdom, and China are committed to the construction of smart cities and to making them a sustainable and essential policy tool to improve urban resilience [
10,
11,
12]. A large body of research on this “booming” phenomenon has yielded rich outputs [
13]. Some studies have attempted to clarify the concept and characteristics of smart cities, pointing out that smart cities cannot simply be equated with technology but should be composed of a series of elements such as land, citizens, technology, and governance [
14,
15], as well as the idea that the smart city is innovation composed of technology, management, and policy [
16]. However, the city is a complex and dynamic assemblage of relationships and technologies, and the smart city is also a dynamic concept, a fully consistent definition of which has not yet been established. Many scholars focus on the functions and performance of smart cities, exploring how they can be used to support higher quality urban spaces, better public service delivery, and citizen well-being. For example, smart cities enable the public sector to more effectively utilize information technology infrastructure and smart devices, which can increase the value of public services to communities [
17]. Smart cities also help to address the challenges of social exclusion and environmental pollution faced in urban development, strengthen the scientific and technological level of government and the efficiency of resource allocation, and improving the regional environment [
18,
19]. In addition, others are concerned with the participation and interaction of stakeholders in the process of smart city construction and development [
20,
21,
22], and have endeavored to enrich the theoretical framework of smart city research [
23]. Still others have shifted their research focus to practices inside cities, shedding light on the different paths taken by different cities around the world in interpreting and applying the notion of the smart city [
24]. In summary, these studies have emphasized the use of ICT and the importance of effectively integrating different city management systems, sharing information resources and promoting operational synergies among city systems [
25,
26]. Smart cities advocate intelligent city management and services, enhance city operations and management, improve public services, and contribute to the welfare of residents, with the ultimate goal of achieving the sustainable development of innovative cities. Exploring the causal relationship and mechanisms between smart cities and urban innovation is essential for advancing urban innovation, promoting national economic development, and planning for the future construction of smart cities [
27].
The concept of urban innovation may vary according to different research perspectives. There are studies in the field of public administration that classify urban innovation into four dimensions including the agenda, process, product, and symbolic innovation of different policies [
28]. In the economic sphere, cities have become key units of innovative activity, bringing together various elements such as enterprises, talent, capital and institutions, and innovation refers primarily to scientific and technological progress [
29]. Urban innovation means the processes and products of innovative activities in cities that are primarily centered on scientific and technological progress. Urban innovation is characterized by significant temporal and spatial structure from the point of view of urban innovation networks or urban innovation systems [
30,
31]. The determined factors of urban innovation have long been in the spotlight, the early literature has highlighted the role of intra-city factors on innovation, such as city size [
32], public infrastructure [
33,
34], educational resources [
35,
36], and fiscal decentralization [
37]. With the advancement of research methods such as quasi-natural experiments, studies have begun to extend the boundaries of factors influencing urban innovation beyond the city to explore the role of macroeconomic policies and institutions [
38]. A body of literature has empirically examined the promotional effects of macro-environmental regulation on urban innovation [
39,
40], some have found that innovative city policies stimulate urban innovation by raising the level of government fiscal expenditures, the degree of urban industrial agglomeration, and the level of human capital [
41], and others have provided evidence that the innovative growth effect of such policies has significant spillover effects on neighboring cities [
42]. However, only limited research has investigated the effects of smart cities on urban innovation as an important urban development paradigm. A study based on data from 309 European metropolitan areas proved that smart city development has a positive impact on urban innovation [
43]. Some evidence from China that there is heterogeneity in the impact of smart city policies on urban innovation depending on geographic location [
44]. Nonetheless, the mechanism by which smart cities affect urban innovation is still unclear and needs to be supplemented by further quantitative analyses and empirical evidence, especially as evidence from developing countries is scarce.
China offers unique conditions for empirically analyzing how smart cities affect urban innovation. First, in order to explore scientific approaches to the construction, operation, management, services, and development of smart cities, China began a national smart city pilot program in 2012 and expanded the scope of the pilot program in 2013 and 2014. The gradual implementation of smart city pilot policies has been characterized as a “quasi-natural experiment”, creating an opportunity to open the black box of causality between smart city development and urban innovation [
45]. Second, compared with studies based on cities in other countries, China has a large sample of cities, with as many as 293 prefecture-level cities, which makes a rich sample for the study. Therefore, based on China’s smart city pilot policy, this paper establishes a staggered DID model to examine the impact of smart city construction on urban innovation and its specific mechanisms, utilizing data from China’s city yearbooks from 2006 to 2019.
This study contributes to related research in three ways. First, we use data from Chinese cities to demonstrate the extent to which smart city construction promotes urban innovation. Our findings add evidence from developing countries to existing studies and are relevant to urban development in other developing countries around the world. Second, we contribute to the existing literature by analyzing in depth the mechanisms through which smart city construction affects urban innovation. We find that smart city pilot policies promote urban innovation through improving urban informatization, government financial expenditure on science and technology, and industrial structure upgrading. Third, we present a rich heterogeneity of results that help deepen our knowledge of how smart city policies affect urban innovation.
The rest of the paper is organized as follows.
Section 2 introduces the institutional background of smart city construction in China and develops the research hypotheses.
Section 3 presents the research design, including data sources, variables, and empirical models. Results are provided in
Section 4.
Section 5 presents conclusions and policy implications.
2. Institutional Background and Research Hypotheses
2.1. Institutional Background
The smart city is an urban form supported by a new generation of information technology and a knowledge society based on a next-generation innovation environment, stressing the role of ICT in improving the functioning of the urban system, facilitating knowledge transfer, constructing innovation networks [
46], etc. In order to drive the construction of new urbanization and enhance the management capacity and service level of cities, the Ministry of Housing and Urban-Rural Development (MoHURD) of the People’s Republic of China officially launched a notice on the development of national smart city pilot projects in November 2012, and issued the “Interim Measures for the Management of National Pilot Smart Cities”, which guided and encouraged the construction of smart cities across the country, and identified 90 national pilot smart cities. In March 2014, China released the National New Urbanization Plan (2014–2020), which explicitly put forward “promoting smart cities” as one of the three major objectives of promoting the construction of new cities. In August of the same year, China’s National Development and Reform Commission and eight other departments jointly formulated the guiding opinions on the healthy development of smart cities, proposing that by 2020, China should build a number of smart cities with distinctive features, significantly improve the comprehensive competitive advantages of cities, and achieve remarkable results in terms of livelihood services, innovative management, and cybersecurity. In November 2015, China finalized the framework of the smart city standard system and evaluation index system. In March 2016, China’s 13th Five-Year Plan clearly states that it will make full use of big data and modern information technology to build a batch of demonstration-type smart cities featuring smart infrastructure, convenient public services, and fine-grained social governance. In 2018, China successively released national standards on top-level design, information technology operation, and information security guarantees for smart cities, which are used to standardize the order of smart cities and advance the higher-level of smart cities. In general, the scope of smart cities in China has been expanding, with China’s MoHURD and Ministry of Science and Technology (MOST) announcing three batches of smart city pilot lists in 2012, 2013, and 2014, respectively, comprising a total of 290 pilot districts (including pilot municipalities, prefectures, counties, and cities at the county level).
From the perspective of relevant policies, the objectives of China’s pilot smart cities are mainly in the areas of raising the efficiency of the supply of public services, improving the administrative efficiency of the government and the level of urban management, improving the urban living environment, upgrading the level of intelligence of public infrastructure, and developing a sophisticated system of urban safety and security networks. The main contents of China’s smart city pilot policy can be summarized as follows: First, in the area of public services, the policy calls for the establishment of a modern information service system covering all people, the improvement of government administrative efficacy by means of smart applications, and the provision of convenient, efficient, and personalized smart medical care, education, and other public services. Secondly, in the area of social management, the policy requires the creation of a smart application system, strengthening data integration, information sharing, and business synergy, strengthening the ability of urban operation monitoring and intelligent security and emergency response, and ensuring the safe and efficient operation of the city. Third, in terms of the industrial system, the policy aims to give full play to the advantages of a new generation information and communication technologies, promote the digital, networked, and intelligent transformation of existing industries, develop new business forms such as smart logistics, smart agriculture, smart tourism, etc., and make industries more competitive.
2.2. Hypothesis Development
From the main objectives and contents of China’s smart city pilot policy, the government’s adoption of the smart city pilot policy should theoretically provide a significant boost to the innovation level of the pilot cities, which may be achieved by upgrading the level of informatization, increasing financial support, and optimizing the industrial structure.
First of all, the smart city pilot policy helps to bring the effects of information technology to cities, thereby promoting urban innovation. First, smart city construction places an emphasis on the use of a new generation of information technology, such as the IoT, cloud computing, big data, and spatial geographic information integration, to improve urban infrastructure, accelerate innovation in urban public services, promote the government’s use of intelligent means to optimize the allocation of resources, improve the efficiency of resource utilization and the level of urban governance, and enhance urban resilience, which contributes to the creation of a favorable innovation environment for enterprises, colleges and universities, and other innovation bodies [
47]. Second, the construction of smart cities is accompanied by the open sharing of substantial information resources, which reduces the information asymmetry, lowers transaction costs, and boosts the efficiency of innovation [
48]. Third, in the process of smart city development, enterprises and other interested parties will accelerate the creation of new technologies and products through the application of ICT, and enhance the overall innovation capacity of the city.
Secondly, the smart city pilot policy will make the government increase its investment in innovation activities in science and technology and enhance the level of urban innovation. On the one hand, the financial expenditure of the government is an important tool for the construction of smart cities, and the pilot policy stresses that local governments should pay attention to funding planning and financial security when carrying out top-level design and planning for smart cities and, at the same time, they should include in their industrial planning the innovation costs of industrial transformation and upgrading and the aggregation of industrial elements, which means that the government’s scientific and technological expenditures will grow as a result. On the other hand, the government’s increased investment in R&D may assist enterprises in reducing R&D costs and avoiding R&D risks, stimulate enterprises and other organizations to strengthen long-term R&D, and encourage more investment in innovation, thus raising the level of urban innovation [
49,
50].
Finally, the smart city pilot policy places great emphasis on the development of smart industries and the economy, promotes the upgrading of existing industries and the development of new industries in the city, optimizes the industrial structure, and is conducive to promoting the gathering of all kinds of innovative elements in the city and stimulating the vitality of innovation in the city.
Based on the above analysis, this paper proposes the following research hypotheses:
Hypothesis 1. Smart city construction can significantly promote urban innovation.
Hypothesis 2. Smart city construction can promote urban innovation by enhancing the level of informationization.
Hypothesis 3. Smart city construction can promote urban innovation by prompting governmental investment in science and technology.
Hypothesis 4. Smart city construction can enhance urban innovation by contributing to the upgrading of the industrial structure.
5. Conclusions and Policy Implications
Taking advantage of the exogenous shock brought by China’s smart city pilot policy, this paper empirically analyzes the impact of smart city construction on urban innovation and its mechanism based on the panel data of 238 prefectural-level cities in China from 2006 to 2019, and mainly draws the following conclusions: First, the construction of smart cities can significantly enhance the level of urban innovation. Second, the mediating effect analysis shows that smart city construction can promote urban innovation development by improving the level of urban informatization, promoting government investment in science and technology, and optimizing industrial structure. Third, the heterogeneity analysis finds that the effect of smart cities on urban innovation varies according to the differences in city size, regional location, and science and education level. In particular, the innovation effect of smart city construction is more obvious in larger-scale cities, cities in the eastern region, and cities with lower levels of science and education. Overall, our main conclusions are in line with the findings of studies based on different cities internationally [
43] and have the potential for broader implications. By elucidating the mechanisms through which smart city construction enhances urban innovation and identifying heterogeneity in the effects, our study offers valuable insights for international debate. Our conclusions provide a foundation for cross-national comparative analysis and policy exchange, facilitating a deeper understanding of the role of smart cities in fostering urban innovation globally, although the need for policy considerations tailored to the specific city characteristics of different countries must also be underscored.
Based on the conclusions of the study, there is a need to focus on the potential of smart city construction as a sustainable policy tool and to develop a policy mix that comprises the areas of smart infrastructure, industrial optimization, fiscal investment, and public governance. There are policy implications as follows:
First, the construction of modern information infrastructure in the region should be further strengthened and consolidated. The government can increase investment in information infrastructure such as data centers, cloud computing platforms, and high-speed Internet, so as to ensure that the level of informatization in the city matches the needs of the smart city.
Second, the structure of government investment in science and technology should be further optimized. The government should appropriately invest more in smart city-related scientific and technological research and development and innovation projects according to the needs of urban development, facilitating sustained breakthroughs in key technological areas. At the same time, policy measures such as financial subsidies and tax incentives can be used to encourage enterprises to increase their investment in science and technology R&D and promote scientific and technological innovation and transformation of products. However, an assessment mechanism should be established to mitigate the adverse effects of government intervention [
67].
Besides, the role of modern information and communication technologies in optimizing industrial structure should be given full play. The industrial layout should be rationally planned according to the development needs and resource advantages of the city to promote industrial agglomeration and the improvement of the industrial chain, and to bring about a synergistic effect and overall competitiveness of the industries. On the one hand, the government should encourage the integration of digital technologies with traditional industries and explore intelligent paths for the development of traditional industries. On the other hand, it should actively cultivate new industries, boost the in-depth integration of modern ICT with new energy development, intelligent manufacturing, and other industries, and develop green, intelligent, and high value-added industries.
Finally, differentiated smart city construction strategies should be implemented for different types of cities according to local conditions. For example, for the more developed large-scale cities and cities in the eastern region, the main priority can be to advance the intelligent development of high-end manufacturing, modern service industries, and other fields, enhancing the intelligence level of urban governance, and accelerating the agglomeration of innovation factors. For cities with a lower level of science and education, further input into science and technology education can be increased on the basis of full consideration of their own development advantages, and scientific and technological innovation and talent cultivation can be strengthened. Future research is needed to understand alternative socioeconomic impacts of smart city construction, how governments can design smart city policies to reap benefits and avoid pitfalls, and the sustainability and scalability of smart city initiatives in a changing technological environment, in addition to investigating the role of stakeholders such as citizens, businesses, and others in shaping the effectiveness of smart city strategies.