Can Digital Financial Inclusion Improve Pension Insurance Coverage: An Empirical Study Based on Provincial Panel Data in China

ABSTRACT This study empirically investigates the impact of digital financial inclusion (DFI) on basic pension insurance (PI) coverage in China using provincial panel data from 2012 to 2022. Facing increasing pressure from an ageing population, China's pension system is challenged by financial constraints and inadequate contribution density and weak contribution compliance, for which DFI is explored as a potential solution. We measure DFI using the Peking University Digital Financial Inclusion Index, which includes coverage breadth, usage depth, and digitization level. Basic pension insurance coverage is measured by the number of insured individuals. Employing a two‐way fixed‐effects model and a one‐period lagged DFI as an instrumental variable to address endogeneity, our findings reveal that DFI expansion significantly increases basic PI coverage. Robustness checks, including variable substitution and sample interval adjustment, confirm these results. Heterogeneity analysis indicates varied DFI effects across income levels and regions. A key contribution is identifying labour productivity as a significant mechanism through which DFI enhances PI coverage. This study offers novel theoretical insights and practical implications for policymakers addressing pension security in ageing societies, particularly highlighting the differentiated regional impacts.