Unlocking Urbanization: The symbiotic relationship between inclusive finance and urban development in China

Abstract

The emergence and development of inclusive finance has made it possible for more economic entities to have easy access to a wider selection of financial services. This shift has significantly addressed the financial challenges inherent in the process of urbanization, making it a driver of the process of urban development. Therefore, this paper provides empirical evidence on the relationship between financial inclusion development and urbanization construction in China using provincial data and a panel-VAR model. The results show that: (1) There is a significant co-integration relationship among inclusive finance, urbanization, government support, and real estate development. (2) Inclusive finance has a long-term positive impact effect on urbanization. (3) Population urbanization has a positive impact on inclusive finance, but income urbanization has a negative impact on inclusive finance. To effectively promote the development of inclusive finance and urbanization, the following measures are of utmost importance: Firstly, while accelerating urbanization construction, it is necessary to expand and enhance the coverage of financial services. This will ensure that multiple regions can benefit from financial services. Secondly, to meet the diverse needs of different regions, more targeted financial products should be developed, making full use of the advantages of inclusive finance. Lastly, the government should strengthen its supervision of financial institutions and reduce the risks associated with inclusive finance, thereby ensuring a positive interaction between inclusive finance and urbanization development.