Digital Finance, Digital Usage Divide, and Urban–Rural Income Gap: Evidence from China

Digital finance can reduce the urban–rural income gap, but the digital divide may limit this effect. This study develops a theoretical framework to explore the interactions between digital finance, the digital usage gap, and income disparity. Using data from 274 Chinese cities, the research applies a two-way fixed-effects and threshold effect model. The results indicate that disparities in digital usage not only diminish but may also distort the convergence benefits of digital finance, producing a U-shaped relationship that exhibits variability across dimensions and regions. Additionally, traditional financial systems appear to moderate this U-shaped pattern by delaying the point at which digital finance begins to widen the urban–rural income gap. However, the extent of this alleviation is influenced by the digital usage is divisive. Once digital technology adoption exceeds a threshold, the negative effect becomes positive, narrowing the urban–rural income gap. Consequently, policy initiatives should prioritize improving financial conditions in rural areas, accelerating the digital transformation of conventional finance, bolstering digital education in rural regions, and addressing the disparities in digital usage.