Digital Economy, Government Intervention, and High-Quality Financial Development

Abstract

High-quality development is the paramount principle in the new era, and the deep integration of the digital economy with the real economy serves as a crucial driving force for cultivating new momentum for economic growth and achieving high-quality development in the financial sector. Empirically, this paper measures the comprehensive levels of both the digital economy and high-quality financial development across 31 Chinese provinces from 2013 to 2022. Government intervention is characterized using word frequency data related to the digital economy extracted from provincial government work reports. Based on this, econometric analyses are conducted. The results demonstrate that the digital economy significantly promotes high-quality financial development. This conclusion remains robust after addressing endogeneity concerns by employing the interaction term between the 1984 number of post offices per 100 people and the previous year's information technology service revenue as an instrumental variable, and after controlling for fixed effects and conducting other robustness tests. Mechanism analysis reveals that government intervention amplifies the positive effect of the digital economy on enhancing the level of high-quality financial development. Furthermore, utilizing spatial and threshold models, we find that high-quality financial development and the digital economy exhibit significant spatial agglomeration effects. However, both the digital economy and government intervention exert negative spatial spillover effects on high-quality financial development. Additionally, government intervention exhibits a significant non-linear threshold effect on the relationship between the digital economy and high-quality financial development. To foster high-quality development in finance, it is essential to promote the vigorous growth of the digital economy, optimize and upgrade traditional financial mechanisms to integrate them into the wave of digitalization. Simultaneously, governments need to maintain firm confidence in the digital economy and implement a series of supportive policy measures. Moderate intervention is warranted to pave a solid path for achieving high-quality development in the financial sector.