Abstract: High-quality development of the urban economy provides solid support for exploring the value creation potential of multiple production factors and promoting sustainable economic growth. This paper takes prefecture-level cities across the country as research samples, and empirically examines the impact of digital-real integration on the high-quality development of the urban economy as well as the mechanism underlying the impact. The study finds that digital-real integration significantly improves the total factor productivity of cities. The results of the mechanism test shows that digital-real integration improves the quality of urban economic development by enhancing urban innovation capabilities, upgrading industrial structure and stimulating digital consumption demand. Heterogeneity analysis reveals that in regions characterized by higher levels of commercial credit and more robust legal institutions, digital-real integration exerts a more pronounced positive effect on promoting high-quality urban economic development. In regions exhibiting a high degree of market fragmentation, digital-real integration demonstrates a substitutive effect, primarily enhancing urban total factor productivity rather than the overall quality of economic development. This study effectively expands the research scope of the digital economy and provides important inspiration for the high-quality development of the urban economy and the optimization of the institutional environment supported by the digital-real integration.

Key words: digital-real integration, high-quality economic development, innovation capability, industrial structure, institutional environment