Transformations  in
Business & Economics

DOES DIGITAL FINANCIAL INCLUSION NARROW THE URBAN-RURAL INCOME GAP? EVIDENCE FROM PREFECTURE-LEVEL CITIES IN CHINA¹
Yiping Xiao, Yu Zhang, Changcun Wen, Qing He, Xin Xia

ABSTRACT: Financial inclusion is an effective way to eliminate poverty and narrow the income gap. Digital financial inclusion developed by digital technology has further improved its accessibility and affordability. However, it has also sparked discussions on whether digital financial inclusion can contribute to narrowing the urban-rural income gap due to technical barriers. To explore the relationship between digital financial inclusion and urban-rural income gap, using the data of China’s prefecture-level cities from 2011 to 2020 and the fixed-effects model, the influence mechanisms of digital financial inclusion on the urban-rural income gap were analyzed. Results show that: (1) Digital financial inclusion directly narrows the urban-rural income gap by improving the coverage breadth of financial digital financial inclusion and the degree of digitization. It indirectly narrows the gap by promoting rural industrial development and farmers’ employment and entrepreneurship. (2) The influence of different digital financial services on the urban-rural income gap is heterogeneous. Online insurance and online money fund narrow the gap, whereas online credit and online investment widen it. (3) The influence of digital financial inclusion on the urban-rural income gap is heterogeneous among different regions. In high-income regions, it has no significant impact on the gap; in middle-income regions, it contributes to narrowing the gap; in low-income regions, it widens the gap. Conclusions can provide policy implications for developing digital financial inclusion to narrow the urban-rural income gap.

KEYWORDS:  digital financial inclusion, urban-rural income gap, mediation effect, heterogeneity.

JEL classification:  F061, F124, F304

¹Acknowledgments:  This research was funded by Philosophy and Social Sciences Research Projects of Colleges and Universities in Hubei province (Grant No.21Q124) and Key Project of Soft Science Research of Zhejiang Province (Grant No. 2020C25011).