Digital finance and environmental pollution: an analysis based on spillover and threshold effects in China

Digital finance (DF) has emerged as a transformative model within the financial industry and an effective instrument for controlling environmental pollution. However, existing studies have generated mixed findings regarding its net environmental impact. This study examines the impact of DF on environmental pollution across 284 Chinese cities from 2011 to 2022 using a spatial Durbin model. The results reveal that DF significantly reduces local pollution and also produces pollution-reducing spillover effects in neighboring cities. Mechanisms tests identify two key channels: DF facilitates industrial structure upgrading and green technological innovation. Heterogeneity tests show that both the direct and spatial spillover effects of DF are most pronounced in cities with high economic development and high digital innovation. Finally, a panel threshold model uncovers a marginally increasing, nonlinear relationship between DF and pollution abatement, indicating that environmental benefits accelerate as DF deepens. Our study enriches the digital finance-environment nexus by integrating spatial interdependencies, mechanism pathways, and threshold dynamics.