Digital financial inclusion and urban carbon emissions: an empirical study based on nonlinear characteristics and mechanism testing

Purpose- This study intends to investigate the nonlinear relationship between Digital Financial Inclusion (DFI) and carbon emission intensity in Chinese cities. It seeks to uncover the potential "U-shaped" pattern of DFI's environmental effects and examine the underlying mechanisms, including technological innovation and urbanization, while considering variations across different city types. Methodology- Applying balanced panel data from 270 Chinese cities spanning 2012 to 2022, the study employs a two-way fixed effects model and the system Generalized Method of Moments (GMM) for empirical analysis. The research examines the nonlinear impact of DFI on carbon emission intensity and explores the mediating role of technological innovation and the moderating effect of urbanization. Findings- The results indicate that DFI significantly reduces carbon emission intensity, but this effect follows a distinct "U-shaped" pattern, with a turning point at an index value of 137, revealing diminishing marginal returns in emission reduction benefits. Technological innovation is identified as a key mediating channel. Urbanization negatively moderates the emission reduction effect, reflecting an "inclusive compensation" characteristic of DFI in less developed areas. Furthermore, resource-based cities exhibit a stronger initial emission reduction effect but face more severe U-shaped rebound risks. Conclusion- We provide empirical evidence supporting the design of differentiated emission reduction strategies. It highlights the importance of considering the nonlinear dynamics of DFI and local characteristics—such as urbanization and city type—in formulating effective environmental policies. Keywords: Digital financial inclusion, carbon emission intensity, U-shaped curve, resource endowment, carbon lock-in