Digital financial inclusion and air pollution: Nationwide evidence of China

Abstract

We provide nationwide causal estimates of digital financial inclusion’s (DFI) effect on air pollution in the short term for China from 2014 to 2018. Using distance to Xihu District as an instrument, 1% gain of DFI increases air pollution by 0.36%. The baseline result is strongly robust to various checks. The coverage breadth and usage depth of DFI increase pollution, with the elasticity of 0.39 and 0.37 respectively, whereas the digitization level of DFI lowers pollution, with the elasticity of -1.42. The heterogeneous short-run effect of DFI can be attributed to a multitude of channels, including pollution standard, geographical factors, population density, development gaps and international trade.