The Influence of Digital Inclusive Finance on Total Factor Productivity: Evidence from China

Inclusive finance is defined as the high proportion of individuals and businesses who use financial services in an effective and affordable manner, which aims to break down economic barriers in less developed areas and supports their access to financial services, alleviates the difficulties faced by enterprises in accessing affordable financing, and improves marginal productivity of inputs.
Over the past two decades, China's economy saw a significant increase, while its development is uneven, leaving room for inclusive finance to play a pivotal role in addressing disharmony and imbalances. Therefore, it has practical implications to research China’s inclusive finance and its impact mechanism, which supports the quality enhancement of economic services and development in China, and even provides a reference model for the world.
Based on data from 2010 to 2020 on inclusive finance standards and total factor productivity (TFP) across 30 Chinese provinces, this manuscript first provides an overview of inclusive finance development in China. Then it measures the the impact of inclusive finance on TFP by applying Tobit model (Honoré,1992; Kyriazidou,1997), mainly because of its appropriateness in handling the non-negative cumulative nature of TFP. The empirical analysis shows that inclusive finance has a significantly positive impact on TFP. Furthermore, both the depth and the coverage of inclusive finance significantly enhance the level of inclusive finance, and its coverage exerts a greater influence on TFP than its depth.