The Effect of Digital Financial Inclusion on Relative Poverty Among Urban Households: A Case Study on China

This study examines the effect of digital financial inclusion on relative poverty among urban households in China. Based on the data of the China Family Panel Studies and the Peking University Digital Financial Inclusion Index of China, using the weak relative poverty line to identify relative poverty among urban households, we use a probit model, a mediating effect model, and an instrumental variable method to conduct empirical research. The results reveal that digital financial inclusion helps reduce the probability that urban households will fall into relative poverty. Digital financial inclusion not only promotes entrepreneurship by urban households but also increases their participation in the financial market. The increase in their income flow can be translated into an improvement in the stock of wealth, enabling them to avoid falling into relative poverty. But this effect is heterogeneous. Digital investment and digital credit play more important roles than digital payment. It is also more pronounced in households with higher financial literacy and households in smaller cities. In addition, regardless of how the relative poverty line and digital financial inclusion are calculated, our results are robust. The research in this study is important for a comprehensive understanding of the development of digital financial inclusion and urban relative poverty in developing countries such as China.