How does digital development affect firm innovation and who can benefit more?

Digital development has been crucial in transforming different aspects of the economy. This paper demonstrates that external networks and spillovers could be important sources for firms' innovation performance in the digital era, which points to the potential benefits of digitalisation for knowledge spillovers and innovation. This paper employs Chinese city-level and firm-level data with 12,487 firm-year observations from 2011 to 2019 to conduct the empirical analysis. The results show that regional digital development facilitates firm innovation, especially collaborative innovation activities among firms. This paper further shows that firms with lower supplier concentration benefit more from digital development in terms of innovation. In terms of heterogeneity, technology-intensive and relatively small firms benefit from digital development. This paper contributes to the literature by filling the gap about the mechanisms of digital development on firm innovation and by examining the role of suppliers in firm innovation in the digital era. To foster advances in innovation, this paper provides relevant theoretical and practical implications.