Digital Financial Inclusion and Provincial Economic Growth in China: Evidence from a Two-Way Fixed-Effects Panel, 2011–2023
DOI:
https://doi.org/10.54097/rcakka96Keywords:
Digital payments, financial inclusion, economic growth, technological innovation, mediation, instrumental variables, panel data, ChinaAbstract
This paper asks whether the rapid expansion of digital payment platforms such as Alipay and WeChat Pay is linked to provincial economic growth in China, and if so, through what channel. It builds a panel of all 31 provincial-level regions from 2011 to 2023 (n = 403), combining the Peking University Digital Financial Inclusion (DFI) Index with official provincial data on GDP, urbanization, patents, foreign direct investment, higher-education enrollment, and industrial structure. A pooled regression finds a strong positive relationship between DFI and GDP (β = 0.573, p < 0.001), but this weakens sharply once province and year fixed effects are added (β = 0.142, p = 0.117) and is confirmed insignificant by a wild cluster bootstrap (p = 0.187), suggesting the pooled result largely reflects a shared national trend rather than a province-specific effect. Testing technological innovation as a possible channel, DFI strongly predicts patent applications (β = 0.775, p < 0.001), and patents in turn predict GDP after controlling for DFI (β = 0.093, p = 0.023), with a significant indirect effect confirmed both analytically (Sobel p = 0.042) and by a percentile bootstrap (95% CI [0.007, 0.150]). This innovation channel is sensitive to further checks, however: it weakens once foreign direct investment, education, and industrial structure are added as controls (b-path p rises to 0.259), and a panel unit-root test cannot rule out non-stationarity in the patent series. An exploratory instrumental-variables estimate using each province's distance to Hangzhou finds a large, positive association between instrumented DFI and GDP, but with a first-stage F-statistic that is only borderline strong (10.8) and an exclusion restriction that cannot be verified, so it is offered as a supplementary check rather than a resolution of endogeneity. Overall, this paper finds no robust direct effect of digital financial inclusion on provincial GDP, but suggestive evidence of an innovation-related channel that does not fully survive additional controls. A separate test for moderation by urbanization is statistically unstable and is not treated as evidence.
Downloads
References
[1] Guo, F., Wang, J., Cao, Y., Cheng, Z., Li, Y., & Wang, F. (2024). The Peking University digital financial inclusion index of China (2011–2023). Institute of Digital Finance, Peking University.
[2] Xie, X., Shen, Y., Zhang, H., & Guo, F. (2018). Can digital finance promote entrepreneurship? Evidence from China. China Economic Quarterly, 17(4), 1557–1580.
[3] Zhang, Y., Li, K., Pang, Y., & Coyte, P. C. (2024). The role of digital financial inclusion in China on urban–rural disparities in healthcare expenditures. Frontiers in Public Health, 12, 1397560. DOI: https://doi.org/10.3389/fpubh.2024.1397560
[4] Wei, L., Di, J., & Zhou, Q. (2025). What is the role of digital divide between digital inclusive finance and common prosperity? Evidence from 245 cities in China. Humanities and Social Sciences Communications, 12, 1764. DOI: https://doi.org/10.1057/s41599-025-06053-7
[5] Granger, C. W. J., & Newbold, P. (1974). Spurious regressions in econometrics. Journal of Econometrics, 2(2), 111–120. DOI: https://doi.org/10.1016/0304-4076(74)90034-7
[6] Kerola, E., & Mojon, B. (2021). What 31 provinces reveal about growth in China (BIS Working Paper No. 925). Bank for International Settlements. DOI: https://doi.org/10.2139/ssrn.3776025
[7] Khera, P., Ng, S., Ogawa, S., & Sahay, R. (2021). Is digital financial inclusion unlocking growth? (IMF Working Paper No. WP/21/167). International Monetary Fund. DOI: https://doi.org/10.5089/9781513584669.001
[8] Peterson Institute for International Economics (PIIE). (2019). Urbanization and economic growth in China.
[9] National Bureau of Statistics of China (NBS). National data. Annual by province: Population series (urban and resident population). https://data.stats.gov.cn
[10] Li, Y., Long, H., Ouyang, J., & Ma, H. (2022). Digital financial inclusion, spatial spillover, and household consumption: Evidence from China. Complexity, 2022, 8240806. DOI: https://doi.org/10.1155/2022/8240806
[11] Baron, R. M., & Kenny, D. A. (1986). The moderator-mediator variable distinction in social psychological research: Conceptual, strategic, and statistical considerations. Journal of Personality and Social Psychology, 51(6), 1173–1182. DOI: https://doi.org/10.1037/0022-3514.51.6.1173
[12] National Bureau of Statistics of China (NBS). National data. Annual by province: Gross regional product series. https://data.stats.gov.cn
[13] World Intellectual Property Organization (WIPO). (2019). World intellectual property indicators 2019, Chapter 1: Patents. WIPO.
[14] Cameron, A. C., Gelbach, J. B., & Miller, D. L. (2008). Bootstrap-based improvements for inference with clustered errors. Review of Economics and Statistics, 90(3), 414–427. DOI: https://doi.org/10.1162/rest.90.3.414
[15] Zhang, X., Wan, G., Zhang, J., & He, Z. (2019). Digital economy, financial inclusion, and inclusive growth. Economic Research Journal, (8).
[16] National Bureau of Statistics of China (NBS). National data. Annual by province: Foreign direct investment (Total investment of foreign-funded enterprises) series. https://data.stats.gov.cn
[17] National Bureau of Statistics of China (NBS). National data. Annual by province: Number of students per 100,000 population in higher education series. https://data.stats.gov.cn
[18] National Bureau of Statistics of China (NBS). National data. Annual by province: Gross regional product of the secondary industry series. https://data.stats.gov.cn
Downloads
Published
Issue
Section
License
Copyright (c) 2026 International Journal of World Economic Research
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
