FinTech adoption and the effects of economic uncertainty on household consumption

Abstract

This paper examines how the adoption of FinTech affects household consumption in the presence of economic uncertainty. We use regional-level FinTech adoption and economic uncertainty measurement, along with representative household-level consumption data, to investigate this issue. Our empirical analysis shows that while high levels of economic uncertainty lead to a shift in household consumption from services to non-durable goods, widespread adoption of FinTech overcomes this negative effect and prevents the reduction in service spending. We use the distance of a household from Hangzhou and the economic uncertainty in the United States as proxies for exogenous variation in FinTech adoption and economic uncertainty in China, respectively, and find similar results. Focusing on the transmission channel, we find that FinTech helps alleviate credit constraints, contributes to entrepreneurship and employment opportunities, and thus mitigates the negative impact of economic uncertainty on household consumption.