Digital financial inclusion and household risk sharing: Evidence from China's digital finance revolution

This paper examines how digital finance development affects household risk sharing in China. We provide convincing evidence that households that experience idiosyncratic negative shocks on income growth exhibit a disproportionally lower level of reduction in idiosyncratic consumption growth in regions with better digital financial inclusion. Improved risk sharing through reduction in transaction costs of remittance that digital finance generates, and the liquidity and saving effects that digital financial products provide are two possible mechanisms through which digital financial inclusion affects household risk sharing. However, the development of traditional banking credit market does not appear to promote risk sharing.