Digital financial inclusion and middle-income group vulnerability alleviation: Evidence from China

Abstract

Economic uncertainty is becoming increasingly apparent, and under the unbalanced “pyramid” internal hierarchical structure of the middle-income group, some middle-income groups are on the brink of decline. This study uses microdata from the Chinese Family Panel Studies (CFPS) from 2012 to 2020 to prospectively predict the vulnerability of the middle-income group and examine whether digital financial inclusion can alleviate the vulnerability of this group. We find that the vulnerability risk of China's middle-income group is prominent and that digital financial inclusion can mitigate vulnerability risk. Moreover, its marginal effect is most evident for those on the edge of the lower bound of the middle-income group, which indicates that digital financial inclusion creates more opportunities for groups at the bottom of the distribution to share the benefits of development. Further research reveals that digital financial inclusion stimulates the vitality of household innovation and entrepreneurship, promotes participation in financial markets, expands operating income channels, enriches sources of property income, and thereby enhances the stability of the household income structure, consolidating the position of the middle-income group in the income distribution pattern. This study provides new ideas for China and other developing countries to explore feasible paths for stabilizing and expanding the middle-income group.