The Impact of the Digital Economy on Financial Regulatory Costs: An Empirical Analysis Based on the Solow Growth Model

As a novel economic form, the digital economy is reshaping the financial regulatory landscape and significantly impacting regulatory costs. This paper incorporates the digital economy and financial regulatory costs into the classic Solow growth model, uncovering an inverted U-shaped relationship between them. A subsequent mechanism analysis explains the rationale behind this relationship. To empirically examine this relationship in China, the paper utilizes inter-provincial panel data from 2013 to 2021 and employs methodologies such as the two-way fixed effects and moderating effects models. These analyses have important implications for the sound and sustainable development of China's financial industry. The findings indicate:(a) As China's digital economy develops, its impact on financial regulatory costs follows an inverted U-shaped pattern, initially increasing and then declining. This conclusion remains valid after robustness tests.(b) The influence of the digital economy on regulatory costs depends on favorable external conditions. Specifically, the impact is more pronounced in regions and periods with better digital infrastructure and more abundant human capital.(c) Additionally, redundant resources moderate this impact, which can weaken the inverted U-shaped relationship. Our findings not only provide a theoretical foundation for understanding the impact of the digital economy on financial regulatory costs but also offer valuable policy insights for optimizing financial regulation in China.