Research on the Impact Mechanism of Digital Financial Development on Urban Environmental Governance

Abstract

The economy of China is based on a crude development paradigm, which has made environmental degradation a major issue. Enhancing the quality of the environment and achieving a healthy coexistence between humans and the natural world while maintaining economic growth have emerged as critical challenges in China nowadays. As a result of the recent rapid advancements in digital technology, digital finance—a byproduct of both the industrial revolution and new technological revolution—has the potential to significantly impact the ecological environment, foster regional innovation, and enhance the use of energy in the process of economic development. There are currently less comprehensive studies on the influence of digital money on environmental protection in China, despite the fact that local academics have come to acknowledge the connection between financial development and environmental regulation. In light of this, the purpose of this article is to investigate, using both qualitative and quantitative methods, how digital finance affects China's environmental governance. This research uses sulfur dioxide emissions as a proxy for environmental pollution and uses Peking University's Digital Financial Inclusion Index to assess the level of digital financial development in each city. It focuses on examining the mechanisms of action and the diverse features of the development of digital finance in relation to environmental pollution in Chinese cities, and it makes specific policy recommendations based on panel data from 31 provincial capital cities between 2014 and 2020. The following are the paper's conclusions: first, it conceptually examines the ecological impact of digital finance from three angles.: scale, structure and technology; Second, an empirical test based on assessing the environmental pollution index and other indicators of 31 cities is conducted using the mediated impact analysis approach. The study's conclusion is that, to a certain extent, digital finance has reduced environmental pollution. This is because of its increased coverage, depth of use, and degree of digitization. Additionally, digital finance can lessen environmental pressure by encouraging the expansion of social and economic scale, enhancing technological innovation, and optimizing industrial structure.