Digital development and rural financial inclusion: Evidence from China

Digital technology has profoundly influenced the development of the financial sector and is of great importance to financial inclusion. This paper employs sub-provincial panel data from 2005 to 2019 to analyse the impact mechanisms of digital economy development on rural finance, exploring the impact of digitalization and overall digital literacy on rural finance. Our findings verify that digitalization has a positive contribution to rural finance, while digital literacy has a significant inhibitory effect on rural finance. This still holds after a series of robustness tests. Subsequent mechanism analysis reveals that digital technology benefits rural finance by optimizing industrial structure and promoting technological progress, while digital literacy accelerates urbanization, leading to the loss of rural labor and thus inhibiting rural finance. Heterogeneity analysis shows that the role of the digital economy in rural inclusive finance is more pronounced in the eastern and central regions. Additionally, higher levels of human capital, economic development, entrepreneurship, and digitalization will further enhance the impact of the digital economy on rural inclusive finance. This study offers a new pathway for the realization of financial inclusion and a theoretical reference for financial development in rural areas. Our empirical analysis also provides new perspectives and insights for the formulation of policies and measures to coordinate the development of various elements of digital finance and cope with the impact of the digital economy on rural finance.