Innovation and Green Development (Mar 2024)
On the linkages between digital finance and real economy in China: A cointegration analysis
Abstract
This study uses panel data from 31 Chinese provinces covering the years 2011–2020 to investigate the long-term equilibrium between digital finance and the real economy. A number of statistical model, such as the cross-sectional dependence test, the CADF unit root test, the panel cointegration test, and the PMG method are used. The results establish the existence of a co-integration link between digital finance and the real economy. In the short term, the digital finance effectively fosters the growth of the real economy. However, in the long run, digital finance exhibits a noticeable inhibiting effect. When looking into the eastern region, we observe that digital finance does not have a short-term impact on the real economy, while it exhibits a substantial adverse effect in the long term. However, in non-eastern regions, digital finance positively contributes to the advancement of the real economy in the short term. Yet, this positive impact does not persist in the long term. Overall, our study demonstrates that although digital finance can facilitate short-term progress in the real economy, relying solely on digital finance for long-term development proves challenging.