Analysis of Spatial Evolution of Inclusive Finance at the County Level: A Comparative Study of Traditional and Digital Finance

ABSTRACT In light of the increasing relevance of inclusive finance in reducing economic inequality, this study explores the developmental patterns of both traditional and digital inclusive finance at the county level within China. Utilising panel data from 1867 counties from 2014 to 2020, alongside the ‘Peking University Digital Financial Inclusion Index’, the paper examines the progression of these two forms of finance. By applying the Thiel index model and spatial econometric model, the research analyses the convergence and divergence between traditional and digital inclusive finance. The findings reveal: (1) Between 2014 and 2020, both traditional and digital inclusive finance experienced notable growth. The digital finance index surged by 147.64% at its median, surpassing the 71.21% growth of traditional finance. Nevertheless, a regional imbalance persists, with eastern areas showing more advancement than western ones. (2) Over 70% of regional disparities are attributed to factors within provinces. While digital inclusive finance saw fast convergence until 2016, its pace decelerated sharply thereafter. (3) Significant spatial clustering and correlation are observed in county‐level inclusive finance. In 2020, Moran's I index for digital finance was 0.215, indicating stronger spatial interdependence compared to traditional finance. Convergence is notably quicker in the western regions and poorer counties, with rates of 0.195 for traditional finance and 0.161 for digital finance in these areas. This study stands out by offering a detailed comparison of the spatial evolution and convergence of both types of inclusive finance, with particular attention to the influence of neighbouring regions. This approach sheds light on the spatial and temporal dynamics of financial inclusion in China, providing key insights for policymakers aiming to foster balanced regional growth and improve financial inclusion.