Digital finance and sustainable development: Evidence from environmental inequality in China

Abstract Achieving environmental equity is important for ensuring resource utilization efficiency and realizing sustainable development. Using panel data of 286 cities in China from 2011 to 2018, this paper analyzes whether financial support in the form of digital finance can mitigate environmental inequality. The findings indicate that (1) digital finance has a significant mitigating effect on environmental inequality. Digital finance development has a stronger industrial pollution emission reduction effect on high‐polluting regions than on low‐polluting regions and can reduce the environmental pollution gap between regions. The results of robustness tests such as an endogeneity test support this finding. (2) Digital finance development can have a stronger mitigating effect on environmental inequality in regions with a stronger local government governance capacity and environmental preferences. Digital finance can be a more significant inhibitor of environmental inequality in areas where industries transfer out due to their stronger needs for industrial transformation and finance. (3) Residential income and green technology innovation are important factors affecting industrial pollution emissions and reductions. Digital finance development can narrow the income gap between regions and promote the convergence of green technology innovation capacity, in turn alleviating environmental inequality. In the future, while continuing to promote the development of digital finance, it is necessary to improve the governance capacity of local governments, to increase the efficiency of resource utilization in places where industrial transfer is undertaken and to strengthen the role of financial support in industrial pollution control.