Economic Policy Uncertainty and Digital Finance Development: Evidence From 30 Regions in China

ABSTRACT In the context of frequent trade frictions and geopolitical conflicts, the increase in economic policy uncertainty highlights the application value of digital technologies. Digital finance business development originates from applying achievements in financial technology innovation and is also rooted in specific economic policy environments. This work explores the relationship between regional economic policy uncertainty and digital finance. Using data from 2011 to 2021 across 30 Chinese regions, we discover that economic policy uncertainty positively impacts digital finance and that there is regional heterogeneity. Economic policy uncertainty effectively drives government investment. Meanwhile, government investment plays a mediating role in economic policy uncertainty and digital finance. According to the threshold regression test, economic policy uncertainty's impact on digital finance demonstrates a double threshold effect dependent on the economic development level. As economic development levels rise, the promoting role of economic policy uncertainty in digital finance gradually strengthens. Further analysis reveals that digital finance has a significant spatial positive correlation and that economic policy uncertainty can drive the development of digital finance in neighbouring areas through the spatial spillover effect. Consequently, financial institutions should actively develop digital finance to strengthen their risk resilience in the face of shocks to economic policy uncertainty. Simultaneously, the government may facilitate the orderly and healthy development of digital finance through augmenting investment, optimising the layout of digital infrastructure, and boosting interregional collaboration.