The Impact of Digital Financial Inclusion on Urban Entrepreneurial Activity

Abstract

Propelled by the rapid expansion of digital economy and the national ‘Mass Entrepreneurship and Innovation’ strategy, effectively stimulating urban entrepreneurial vitality has become a cornerstone of high-quality regional economic development. This study investigates the impact of digital financial inclusion on urban entrepreneurial activity, alongside its underlying transmission mechanisms. Utilizing a balanced panel data from 238 prefecture-level cities in China covering the period from 2015 to 2023, this paper deploys a two-way fixed effects model, an instrumental variable approach, and a two-step mediation effect model to conduct systematic empirical analysis. The findings reveal that digital financial inclusion significantly catalyzes urban entrepreneurial activity, a conclusion that withstands a battery of endogeneity treatments and robustness checks. Mechanism analysis demonstrates that digital financial inclusion drives urban entrepreneurial activity by mitigating financing constraints. Furthermore, heterogeneity analysis uncovers a pronounced spatial asymmetry demarcated by the Hu Huanyong Line: the stimulative effect is highly significant in cities on the southeastern side, whereas it remains statistically insignificant for their northwestern counterparts. Accordingly, this study advocates tor the continuous refinement of the digital financial inclusion framework to enhance financial accessibility for micro and small entrepreneurial entities, alongside the precise mitigation of financing constraints and the implementation of spatially differentiated digital finance policies. Additionally, optimizing the urban entrepreneurial ecosystem is paramount to fostering robust synergies among digital finance, public services, and industrial support.