Digital inclusive finance and urban innovation: Evidence from China

Previous studies are not unanimous on the effect of financial development on innovation. Digital inclusive finance is one mode of financial development, so its impact on urban innovation needs to be further tested. To develop digital inclusive finance, China implemented the Plan for Promoting the Development of Inclusive Finance (2016-2020) and the G20 High-Level Principles on Digital Inclusive Finance in 2016. We take the implementation of the Plan and Principles as a quasi-natural experiment and use the difference-in-difference model to estimate the pure effect of digital inclusive finance on urban innovation. The results show that implementing the Plan and Principles can increase the number of urban patents by 5.3%, indicating that digital inclusive finance has a positive effect on urban innovation. In addition, we find that digital inclusive finance can promote urban innovation by improving the allocation of credit resources, consumption, and industrial upgrading.