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| Digital Finance Supports High-quality Development: Theory, Mechanism and Evidence |
| SHEN Yan, JIANG Hongyi, HU Shiyun, ZHAO Jiaqi, HUANG Zhuo
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| China Center for Economic Research/National School of Development/ Institute of Digital Finance, Peking University |
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Abstract High-quality development is the primary task for China in recent years, and the financial system plays a key role in this process. As one of the most significant financial innovations in recent years, digital finance has provided new opportunities for financial support of high-quality development. With the rapid development of digital finance, research on this topic has become a focal point. Existing literature has examined the achievements, impacts, and challenges of digital finance development from multiple perspectives, including countries, regions, industries, sectors, enterprises, households, and individuals. However, looking towards the future, there is a lack of systematic discussion on how to develop digital finance, and in which industries, enterprises, and sectors should we focus efforts to support high-quality development better and prevent systemic financial risks.
This paper aims to review the literature on how digital finance can support high-quality development, from the perspectives of theoretical foundations, empirical findings and mechanisms. With innovation as the primary driving force, it systematically reviews recent research findings on how digital finance supports high-quality development. It extracts the main mechanisms of digital finance services for high-quality development, summarizes the main experiences in digital finance practice, and discusses future policy formulations and academic research directions.
To understand the mechanisms and practices of digital finance in supporting high-quality development, it is necessary to first review the corresponding theories. This paper examines the generalization of the long-tail theory, information asymmetry theory, and transaction cost theory in the field of digital finance, which helps to explain how digital finance can promote capital accumulation, improve the efficiency of capital allocation, and foster innovation. This lays the theoretical foundation for subsequent discussions.
The paper further reviews the literature from two perspectives: how digital finance directly and indirectly support the high-quality development of the real economy. For the first perspective, the paper mainly focuses on supporting rural revitalization and the development of enterprises and industries. In terms of rural revitalization, how to promote it through the development of digital finance is an important contemporary issue. The paper reviews existing literature around the “agriculture, rural areas, and farmers” theme, focusing on empowering agricultural transformation and upgrade, deepening financial services for farmers, and aiding rural inclusive finance. In supporting enterprise development, the development of enterprises is crucial for the high-quality development of China's economy. However, the problem of “expensive and difficult loans” for medium-, small and micro enterprises has not been properly resolved, and the slowdown in the growth of total factor productivity over the past decade has also triggered attention to innovation-driven development. Additionally, China's digital financial services have mainly focused on the retail finance sector, but services for the industrial internet are still in their infancy. The current status and impact of digital finance in aiding the development of the industrial internet deserve attention. Therefore, the paper reviews related literature from three dimensions: digital finance alleviating the financing difficulties of medium-, small and micro enterprises, improving enterprise operations, promoting enterprise innovation, and industrial digital finance facilitating the digitalization of industries.
For the second perspective, the paper considers how digital finance can transform the financial system, thereby enhancing its ability to contribute to high-quality development. Digital finance not only directly changes the way financial institutions contribute to the economy but also triggers a transformation of the entire monetary and financial system. The innovation of digital finance provides new opportunities for the monetary and financial system, while posing new challenges to the stability of the entire financial system. This section mainly unfolds from five aspects. First, the development of digital finance puts pressure on the profitability of traditional financial institutions, prompting banks to undergo digital transformation to improve their service efficiency and quality. Second, it assesses the impact of digital finance development on the transmission of monetary policy. This includes considering how digital finance affects monetary policy transmission through traditional currency and discussing the impact of digital currency. Third, it evaluates the relationship between digital finance development and financial stability, which is further explored from the relationship between digital finance and financial risks and the prevention of digital financial risks. Fourth, it discusses how digital finance can play a role in the context of an accelerating aging process. Fifth, it explores the relationship between digital finance and green finance, as well as the relevant impact of digital finance on green finance.
High-quality development is development that satisfies the people's ever-growing needs for a better life; it is coordinated and shared development. Digital finance may play a positive role by consolidating poverty alleviation efforts, improving financial inclusiveness, and promoting economic convergence between regions. Therefore, the paper further revolves around the important goal of common prosperity, focusing on three aspects: digital finance and poverty reduction, social equality, and urban-rural regional coordinative development. It reviews and assesses the role and impact of digital finance in satisfying the people's needs for a good life and achieving coordinated development.
By summarizing the main mechanisms of digital finance services for high-quality economic development, this paper summarizes the main experiences in digital finance practice and discusses policy implications and academic research directions. It points out that in addition to deepening research in existing fields, issues such as how digital finance can effectively utilize financial data, develop digital finance infrastructure, and support China's high-level opening-up are all worthy of further exploration.
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Received: 16 November 2023
Published: 01 August 2024
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