The Impact of Digital Finance on the Urban-Rural Income Gap in China: The Mediating Role of Employment Structural Transformation

The effect of digital finance on the income disparity between urban and rural areas has attracted wide attention from scholars, and this paper focuses on the mediating role of employment structural transformation, which can contribute more insights to address regional development imbalances and achieve common prosperity. Taking panel data of China's province from 2010 to 2020 as a sample, we use the fixed effect model to integrally test the relationship between the three factors. Our findings indicate that (1) the development of digital finance significantly narrows the urban-rural income gap. The digital finance index increased by 1% and the rural-urban income gap decreased by about 0.34%. The results still hold after considering the endogeneity problem and a series of robustness tests; (2) mechanism analysis shows that digital finance could reduce the urban-rural income gap through the employment structural transformation; and (3) the results of regional heterogeneity show that the reduction effect of digital finance on the urban-rural income gap is stronger in areas with high marketization and in northern regions. Such insights can assist the government in strategically developing rural digital finance, thereby expediting the reduction of regional inequalities and achieving sustainable economic growth. Additionally, the government should focus on guiding rural employment structure transformation to better realize the reduction effect of digital finance on the urban-rural income gap.