Abstract
Digital finance as a new technology-driven business model shortens the distance between borrowers and lenders. Economic research finds that digital finance promotes economic efficiency by reducing transaction costs, information asymmetry, and inequality. Digital finance is an energy-intensive industry; therefore, increased efficiency in the industry should yield environmental benefits. We examine the externality of digital finance on air pollution. By analyzing data on digital financial inclusion and fine particulate matter concentration in China, we demonstrate using a dynamic panel data model that the development of digital finance damages the environment. However, after incorporating a threshold effect into a kink model, we determine that digital finance reduces pollution when its development exceeds a certain level. The results suggest that a high level of digital finance development not only increases economic growth but also improves air quality; this result provides novel insight into the relationship between economic growth and the environment.
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