How does digital inclusive finance promote the journey of common prosperity in China?

Abstract

In contrast to previous studies by using provincial data, this paper employs city-level data from 260 prefecture-level cities in China between 2011 and 2020 to explore the underlying mechanism of how digital inclusive finance promotes the realisation of common prosperity in China. In addition, this paper incorporates financial deepening theory, financial exclusion theory, long tail theory, digital divide theory and technology driven theory to examine the proposed research questions. Through system-GMM and IV estimation, the results show that common prosperity is composed of development, sharing and sustainability. The high level of the weight of the first-level indicators for development and sharing reflects the importance of “prosperity” and “sharing” in common prosperity. Digital inclusive finance plays a significant role in promoting the development of urban common prosperity, with a more pronounced effect in the Eastern cities when compared to the Central and Western cities. In addition, digital inclusive finance is found to promote urban common prosperity by overcoming the digital divide and by improving the activity of urban innovation and entrepreneurship. Furthermore, the degree of marketisation is suggested to exert a positive role in regulating the impact of digital inclusive finance on common prosperity.