Digital financial inclusion, environmental sustainability and regional economic growth in China: insights from a panel threshold model

Abstract

Abstract As digital technologies rapidly transform global economies, the digital financial inclusion index (DFII) has emerged as a critical driver of economic growth, particularly in developing regions. In the context of China, where regional economic disparities persist, the expansion of digital financial services offers a promising avenue to boost regional development, promote inclusive growth, and enhance environmental sustainability. This study looks into how digital financial inclusion affects regional economic growth (GRP) in China’s provinces. It does this by using a panel threshold autoregressive model (PTAR) and a panel smooth transition autoregressive model (PSTAR) to see if the relationship is not always linear. Drawing on data from 31 Chinese provinces between 2003 and 2022, the analysis uncovers significant threshold effects, revealing distinct phases where digital financial inclusion’s influence on economic growth intensifies as financial inclusion increases. Furthermore, digital financial services empower small and medium-sized enterprises (SMEs) and individual entrepreneurs to invest in eco-friendly innovations and low-emission technologies. By lowering barriers to funding, digital financial inclusion encourages the adoption of cleaner production processes and efficient resource management, which can significantly decrease emissions and improve air quality. Additionally, enhanced financial literacy and access to information through digital platforms enable consumers to make environmentally conscious choices, further contributing to reduced pollution levels. These findings provide empirical evidence of the transformative role of digital finance in both regional development and environmental sustainability, underscoring the need for policy interventions that enhance financial inclusion to drive economic growth.

Keywords

• Digital financial inclusion
• Regional economy growth
• Panel threshold models
• China