Abstract
As digital finance is widely spread and applied in China, this new format of financial technology could become a new way to reduce poverty in rural areas. By matching digital financial indexes of the prefectural-level cities with microdata on rural households from the China Household Finance Survey (CHFS) in 2017, we find that digital finance significantly suppresses absolute poverty and relative poverty among rural households in China, which is supported by a series of robustness tests, such as the instrumental variable approach, using alternative specifications, and excluding extreme observations. Additionally, we provide evidence that the poverty reduction effect of digital finance is likely to be explained by alleviating credit constraints and information constraints, broadening social networks, and promoting entrepreneurship. Our findings further complement the research field on financial poverty reduction and offer insights for the development of public financial policies of poverty reduction in other countries, especially in some developing countries.
Highlights
Poverty reduction is the basis for maintaining social stability and has become one of the major challenges in developing countries
We employ the regression with two measures of rural household poverty and find that the coefficients on Digital finance are both significantly negative in columns (1) and (4), suggesting that digital finance contributes to poverty reduction
By matching digital financial indexes of the prefectural-level cities and rural household microdata from the China Household Finance Survey (CHFS) in 2017, we examine the role of digital finance in alleviating rural household poverty using a city fixed effect approach
Summary
Poverty reduction is the basis for maintaining social stability and has become one of the major challenges in developing countries. Few studies explored the impact of digital finance on poverty alleviation Another literature similar to our study comes from Suri and Jack (2016), who obtained the conclusion that FinTech contributes to poverty reduction [37]. The unique Chinese setting helps us to thoroughly understand how digital finance has a stable positive impact on poverty reduction among Chinese rural households, which are easing credit constraints and information constraints, enhancing social networks, and promoting entrepreneurial activities. These findings may provide some useful inspiration of poverty reduction for other developing countries that are similar to China. Our results further enrich the relevant literature on the inclusive finance and functions of digital finance [2, 17, 22, 28]
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