Does digital finance promote household consumption upgrading? An analysis based on data from the China family panel studies*

The relationship between digital financial development and household consumption has drawn much attention from both academia and policymakers. Previous studies have documented that digital financial development fosters the growth of household consumption expenditure, but little attention is paid to its impact on household consumption upgrading. Using China Family Panel Studies data and Digital Financial Inclusion Index, we examine the impact of digital financial development on Chinese household consumption structure. We find that the development of digital finance promotes household consumption upgrading. Liquidity constraints, payment convenience, investment efficiency and household risk-hedging ability are proven to be important channels in the mechanism. Our findings are robust to the dynamic GMM estimation and instrumental variable analysis. It implies that the government should devote more efforts to developing digital finance to promote consumption upgrading, and hence economic growth.

Automated summary

The development of digital finance has a positive impact on household consumption upgrading, by providing liquidity, payment convenience, investment efficiency, and risk-hedging ability. Our findings suggest that the government should focus on developing digital finance to promote consumption upgrading and stimulate economic growth.