Effect of digital inclusive finance on common prosperity and the underlying mechanisms

Abstract

As China transitions to high-quality development, digital inclusive finance has the potential to promote common prosperity. While theoretically, digital inclusive finance is considered conducive to achieving this goal, its practical effects and underlying mechanisms need to be further studied and clarified. This research aims to explore the impact of digital inclusive finance on common prosperity, identifying its heterogeneity characteristics and investigating the mechanisms underlying this relationship. The study reveals the following findings: Firstly, digital inclusive finance plays a positive role in facilitating common prosperity, which is mainly achieved by focusing on the aspect of affluence. However, the effect of digital inclusive finance on enhancing commonality is not significant. Secondly, the breadth of coverage, depth of usage, and digitization level of digital inclusive finance all contribute to promoting both common prosperity and affluence. Further, a broader coverage and higher digitization level are associated with increased commonality. Thirdly, digital inclusive finance contributes to improving prosperity in both the eastern and western regions of China but leads to higher (lower) commonality in the western (eastern) region. Compared with the central and western regions, digital inclusive finance can play a better role in promoting common prosperity in the eastern region. Lastly, the study identifies three channels through which digital inclusive finance promotes common prosperity: advancing individual entrepreneurship, stimulating employment, and propelling Internet financing.