Open Access Journal Article

How does financial development environment affect regional innovation capabilities? New perspectives from digital finance and institutional quality

by Feiling Lu a,*
College of Letters & Science-Economics Dept, University of Wisconsin-Madison, Madison, USA
Author to whom correspondence should be addressed.
JIE  2023, 3; 1(1), 3;
Received: 10 December 2022 / Accepted: 13 January 2023 / Published Online: 16 January 2023


Based on China's 30 provincial panel data from 2006 to 2018, this paper uses the spatial Durbin model to empirically study the influence path and transmission mechanism of financial development on regional technological innovation, and introduce digital finance environment, marketization degree, and government environmental management as an adjustment variable to verify its regulating effect on financial development and regional technological innovation. The study found that the overall promotion of digital finance to local technological innovation is not significant. Besides, the characteristics of ownership discrimination and weak risk appetite in the bank's medium and long-term credit market have led to its failure to promote regional technological innovation. In contrast, the stock market and bond market in direct financing channels have enhanced local innovation capabilities. When the external environmental system is used as the adjustment variable, the results show that an excellent digital finance development, marketization degree, and government environmental management can effectively and positively regulate the effect of financial development and technological innovation.

Copyright: © 2023 by Lu. This is an open-access article distributed under the terms of the Creative Commons Attribution License (CC BY) (Creative Commons Attribution 4.0 International License). The use, distribution or reproduction in other forums is permitted, provided the original author(s) or licensor are credited and that the original publication in this journal is cited, in accordance with accepted academic practice. No use, distribution or reproduction is permitted which does not comply with these terms.
Show Figures

Share and Cite

ACS Style
Lu, F. How does financial development environment affect regional innovation capabilities? New perspectives from digital finance and institutional quality. Journal of Information Economics, 2023, 1, 3.
AMA Style
Lu F. How does financial development environment affect regional innovation capabilities? New perspectives from digital finance and institutional quality. Journal of Information Economics; 2023, 1(1):3.
Chicago/Turabian Style
Lu, Feiling 2023. "How does financial development environment affect regional innovation capabilities? New perspectives from digital finance and institutional quality" Journal of Information Economics 1, no.1:3.
APA style
Lu, F. (2023). How does financial development environment affect regional innovation capabilities? New perspectives from digital finance and institutional quality. Journal of Information Economics, 1(1), 3.

Article Metrics

Article Access Statistics


  1. Allen, F., & Gale, D. (1999). Diversity of opinion and financing of new technologies. Journal of financial intermediation, 8(1-2), 68-89.
  2. Amin, M. R., Hakim, M. A., Rashid, M. M., & Hasan, S. M. (2022). Quantifying the connectedness and portfolio implications between Islamic and conventional bonds: Evidence from global and GCC regions. Journal of Economic Analysis, 1(2), 1-16.
  3. Beck, T., & Levine, R. (2002). Industry growth and capital allocation: does having a market-or bank-based system matter?. Journal of financial economics, 64(2), 147-180.
  4. Bravo-Biosca, A. (2007). Essays on innovation and finance. Harvard University.
  5. Brown, J. R., Martinsson, G., & Petersen, B. C. (2013). Law, stock markets, and innovation. The Journal of Finance, 68(4), 1517-1549.
  6. Cameron, A. C., & Miller, D. L. (2010). Robust inference with clustered data. Handbook of empirical economics and finance, 106, 1-28.
  7. Cao, G. H., & Zhang, J. (2022). The entrepreneurial ecosystem of inclusive finance and entrepreneurship: A theoretical and empirical test in China. International Journal of Finance & Economics, 27(1), 1547-1568.
  8. Caprio, G., & Demirgüç-Kunt, A. (1999). The role of long-term finance: theory and evidence. The World Bank.
  9. Coe, D. T., & Helpman, E. (1995). International R&D spillovers. European economic review, 39(5), 859-887.
  10. Du, M., Hou, Y., Zhou, Q., & Ren, S. (2022). Going green in China: How does digital finance affect environmental pollution? Mechanism discussion and empirical test, Environmental Science and Pollution Research, 7(1):1–15.
  11. Fan, Y., Fang, C., & Zhang, Q. (2019). Coupling coordinated development between social economy and ecological environment in Chinese provincial capital cities-assessment and policy implications. Journal of Cleaner Production, 229, 289-298.
  12. Ge, Y., & Qiu, J. (2007). Financial development, bank discrimination and trade credit. Journal of Banking & Finance, 31(2), 513-530.
  13. Guan, J., & Yam, R. C. (2015). Effects of government financial incentives on firms’ innovation performance in China: Evidences from Beijing in the 1990s. Research Policy, 44(1), 273-282.
  14. Hao, X., Li, Y., Ren, S., Wu, H., & Hao, Y. (2023). The role of digitalization on green economic growth: Does industrial structure optimization and green innovation matter?. Journal of Environmental Management, 325, 116504.
  15. Hao, Y., Guo, Y., Guo, Y., Wu, H., & Ren, S. (2020). Does outward foreign direct investment (OFDI) affect the home country’s environmental quality? The case of China. Structural Change and Economic Dynamics, 52, 109-119.
  16. Hao, Y., Huang, J., Guo, Y., Wu, H., & Ren, S. (2022). Does the legacy of state planning put pressure on ecological efficiency? Evidence from China. Business Strategy and the Environment, 31:403–424.
  17. Hirsch-Kreinsen, H. (2011). Financial market and technological innovation. Industry and Innovation, 18(4), 351-368.
  18. Hsu, P. H., Tian, X., & Xu, Y. (2014). Financial development and innovation: Cross-country evidence. Journal of Financial Economics, 112(1), 116-135.
  19. Hsu, P. H., Wang, C., & Wu, C. (2013). Banking systems, innovations, intellectual property protections, and financial markets: Evidence from China. Journal of Business Research, 66(12), 2390-2396.
  20. Ketterer, J. A. (2017). Digital finance: New times, new challenges, new opportunities.
  21. Khan, Z., Hussain, M., Shahbaz, M., Yang, S., & Jiao, Z. (2020). Natural resource abundance, technological innovation, and human capital nexus with financial development: a case study of China. Resources Policy, 65, 101585.
  22. Kosajan, V., Chang, M., Xiong, X., Feng, Y., & Wang, S. (2018). The design and application of a government environmental information disclosure index in China. Journal of Cleaner Production, 202, 1192-1201.
  23. Li, J., Wu, Y., & Xiao, J. J. (2020). The impact of digital finance on household consumption: Evidence from China. Economic Modelling, 86, 317-326.
  24. Li, Z., Tuerxun, M., Cao, J., Fan, M., and Yang, C. (2022). Does inclusive finance improve income: A study in rural areas. AIMS Mathematics 7, 20909-20929.doi:10.3934/math.20221146
  25. Liu, P., Zhao, Y., Zhu, J., and Yang, C. (2022). Technological industry agglomeration, green innovation efficiency, and development quality of city cluster. Green Finance 4, 411-435.doi:10.3934/GF.2022020
  26. Lu, Z., Zhu, J., & Zhang, W. (2012). Bank discrimination, holding bank ownership, and economic consequences: Evidence from China. Journal of Banking & Finance, 36(2), 341-354.
  27. Mai, X., Chan, R. C., & Zhan, C. (2019). Which Sectors Really Matter for a Resilient Chinese Economy? A Structural Decomposition Analysis. Sustainability, 11(22), 6333.
  28. Ozili, P. K. (2018). Impact of digital finance on financial inclusion and stability. Borsa Istanbul Review, 18(4), 329-340.
  29. Park, S. (2022). Do Bank Capital Requirements Make Resource Allocation Suboptimal?. Journal of Economic Analysis, 1(2), 35-49.
  30. Peng, H., Tan, H., & Zhang, Y. (2020). Human capital, financial constraints, and innovation investment persistence. Asian Journal of Technology Innovation, 1-23.
  31. Ren, S., Hao, Y., & Wu, H. (2022b). Digitalization and environment governance: does internet development reduce environmental pollution?. Journal of Environmental Planning and Management, 1-30.
  32. Ren, S., Liu, Z., Zhanbayev, R., & Du, M. (2022a). Does the internet development put pressure on energy-saving potential for environmental sustainability? Evidence from China. Journal of Economic Analysis, 1(1), 50-65.
  33. Romer, C. D. (1990). The great crash and the onset of the great depression. The Quarterly Journal of Economics, 105(3), 597-624.
  34. Sarma, M., & Pais, J. (2011). Financial inclusion and development. Journal of international development, 23(5), 613-628.
  35. Schumpeter, J. A. (1982). The theory of economic development: An inquiry into profits, capital, credit, interest, and the business cycle (1912/1934). Transaction Publishers, 1-244.
  36. Shi, Z., Wu, Y., Chiu, Y. H., & Chang, T. H. (2022). Research on the influence of technological innovation and technological application: Evidence from China. Journal of Engineering and Technology Management, 63, 101670.
  37. Shin, Y., & Buera, F. (2007). Financial Frictions and the Persistence of History: A Quantitative Exploration (No. 300). Society for Economic Dynamics.
  38. Tadesse, S. A. (2005). Financial development and technology. Available at SSRN 681562.
  39. Turvey, C. G., & Xiong, X. (2017). Financial inclusion, financial education, and e‐commerce in rural china. Agribusiness, 33(2), 279-285.
  40. Wang, N., Cui, D., Geng, C., & Xia, Z. (2022). The role of business environment optimization on entrepreneurship enhancement. Journal of Economic Analysis, 1(2), 66-81.
  41. Wang, S., Yang, C., and Li, Z. (2022). Green Total Factor Productivity Growth: Policy-Guided or Market-Driven? International Journal of Environmental Research and Public Health 19, 10471.doi:10.3390/ijerph191710471
  42. Wu, H., Ba, N., Ren, S., Xu, L., Chai, J., Irfan, M., ... & Lu, Z. N. (2022). The impact of internet development on the health of Chinese residents: Transmission mechanisms and empirical tests. Socio-Economic Planning Sciences, 81, 101178.
  43. Wu, H., Hao, Y., Ren, S., Yang, X., & Xie, G. (2021a). Does internet development improve green total factor energy efficiency? Evidence from China. Energy Policy, 153, 112247.
  44. Wu, H., Xue, Y., Hao, Y., & Ren, S. (2021b). How does internet development affect energy-saving and emission reduction? Evidence from China. Energy Economics, 103, 105577.
  45. Wu, M., Zhao, M., & Wu, Z. (2019). Evaluation of development level and economic contribution ratio of science and technology innovation in eastern China. Technology in Society, 59, 101194.
  46. Xie, X., Huo, J., & Zou, H. (2019). Green process innovation, green product innovation, and corporate financial performance: A content analysis method. Journal of Business Research, 101, 697-706.
  47. Yang, X., Wang, W., Su, X., Ren, S., Ran, Q., Wang, J., & Cao, J. (2022). Analysis of the influence of land finance on haze pollution: An empirical study based on 269 prefecture‐level cities in China. Growth and Change, 4:1–24.
  48. Yang, X., Wu, H., Ren, S., Ran, Q., & Zhang, J. (2021). Does the development of the internet contribute to air pollution control in China? Mechanism discussion and empirical test. Structural Change and Economic Dynamics, 56, 207-224.
  49. Yeh, C. C., & Lin, P. C. (2013). Financial structure on growth and volatility. Economic Modelling, 35, 391-400.
  50. Zhou, Q., Du, M., & Ren, S. (2022). How government corruption and market segmentation affect green total factor energy efficiency in the post-COVID-19 era: Evidence from China. Frontiers in Energy Research, 10, 1-15.
  51. Zhu, X., Asimakopoulos, S., & Kim, J. (2020). Financial development and innovation-led growth: Is too much finance better?. Journal of International Money and Finance, 100, 102083.