Has Digital Financial Inclusion Narrowed the Urban-Rural Income Gap: The Role of Entrepreneurship in China

Xuanming Ji,He Xu,Muchen Li,Kun Wang

doi:10.3390/su13158292

Xuanming Ji, He Xu + Show 2 more

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https://doi.org/10.3390/su13158292

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Abstract

The combination of digital technology and finance has brought about a new development model for financial inclusion. What impact will it have on the current imbalance in the distribution of financial resources and the urban-rural income gap in China? To answer this question, this paper uses relevant data from 2014–2018 to study the impact of digital inclusive finance on the urban-rural income gap from the theory of financial exclusion, and analyzes the transmission of digital inclusive finance through alleviating financial exclusion, widening financing channels and helping residents with entrepreneurial spirit to start their own businesses, thus increasing jobs, raising the income of rural residents and reducing the urban-rural income gap. The conclusions are as follows: (1) digital inclusive finance can significantly converge the urban-rural income gap; (2) among the dimensions of digital inclusive finance, only the breadth of coverage can significantly reduce the urban-rural income gap, while the effects of depth of use and digitalization are not significant; (3) digital inclusive finance can alleviate the urban-rural income gap through the transmission mechanism of promoting residents’ entrepreneurship; (4) the worse the regional economic development and education, the better the effect of digital inclusive finance on the urban-rural income gap. This paper combines the above results to propose corresponding policy recommendations.

Highlights

In 2017, the richest 1% of the world’s population held about 82% of the world’s wealth [1]
This paper aims to study whether digital financial inclusion can reduce the urban-rural income gap
When we use the instrumental variable method, the coefficient of digital financial inclusion still positive and significant at the 1% level. This shows that our initial model does have the problem of endogeneity, and after using instrumental variables to overcome the problem of endogeneity, the results show that digital financial inclusion can promote entrepreneurship of residents with entrepreneurial spirit

Summary

Introduction

In 2017, the richest 1% of the world’s population held about 82% of the world’s wealth [1]. Income gap weakens residents’ happiness through “relative deprivation effect” and “comparison effect”, and generates a negative impact on economic development and social and political stability [2,3]. Since 2000, China’s Gini coefficient has been consistently higher than the internationally recognized 0.4 “warning line” [4]. This huge income gap has become an important reason that restricts the economic development of China [5]. Researchers generally believe that the expansion of income gap in China mainly stems from the expansion of income gap between urban and rural areas [6]. Chen et al found that the urban-rural income gap accounted for 58% of the total income gap by separating the Gini coefficient of

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