Impact of Traditional and Digital Financial Inclusion on Enterprise Innovation: Evidence from China

Abstract

Financial inclusion refers to a process that ensures the ease of access, availability, and usage of the financial system for all members of an economy. This paper aims to study financial inclusion’s impact on enterprise innovation and compare the different effects of traditional and digital financial inclusion. Existing papers mainly focus on digital financial inclusion’s influence. Based on China’s data, this paper fills the gap by constructing an index system to measure traditional financial inclusion and discussing the impact mechanism of the two kinds of financial inclusion on enterprise innovation (output and efficiency). The results illustrate that traditional financial inclusion inhibits the innovation output of enterprises, while digital financial inclusion has a positive effect. However, both traditional and digital financial inclusion is still in the stage of constraining the innovation efficiency of enterprises. Moreover, the two types of financial inclusion function differently for enterprises of different sizes and ownership. Evidence from China is expected to reveal the features of this relationship and inspire research in more economies.