Regional Culture and Digital Financial Inclusion in China

Introduction

The unbalanced development of financial inclusion in different regions of China is a critical issue and a big challenge for inclusive finance. The spatial gap might be resulted from economic development, education levels, local policies, endowments, and regional institutions (Guo et al., 2020). Many studies have examined the causes of the imbalance issue from the perspective of formal institutional environments such as the digital divide, population density, traditional financial development level, government regulation, and human capital (Bai & Lin, 2022; Gholami et al., 2021; Hou et al., 2022; Mahmood et al., 2021; Shao et al., 2021; Xie et al., 2022; Zhang et al., 2023). However, few works explored the impact of informal institutions on the development of digital financial inclusion, especially the impact of regional culture.

In terms of its cultural connotation, digital financial inclusion represents a holistic reflection of several social and environmental factors, thereby imposing higher requirements for the sustainable development of financial systems at the institutional level (Wamba et al., 2021). Its growth and development cannot be separated from the cultural environment. As cultural norms evolve to incorporate greater trust, control, and other attributes, individuals’ attitudes towards financial market transform, leading to increased engagement in innovative financial activities (Dutta & Mukherjee, 2011). Typically, it has been observed that the ethnic or religious diversity is positively associated with the progress of financial inclusion from the global perspective (Saqib et al., 2023). Through the analysis of statistical data from 81 countries along the Belt and Road, it has been determined that individualism and masculinity have a positive impact on the development of national digital inclusive finance, while uncertainty avoidance and power distance would hinder it (Liaqat et al., 2022). Consequently, from a cultural standpoint, the formulation of strategies for digital financial inclusion should shift its focus from standardization to personalization. China, as a nation with a complex population distribution and distinct cultural characteristics, provides a natural environment for carrying out experiments to explore the specific relationship between Hofstede's culture dimensions and digital financial inclusion. In particular, serving as a potent analytical framework, Hofstede culture could demonstrate cultural diversity among nations or within a country (Hofstede et al., 2010). By addressing the research gap, this paper aims to examine the influence of Hofstede's cultural dimensions on the development of regional digital financial inclusion in China. Furthermore, we attempt to understand the impact mechanism for each dimension (individualism, power distance and indulgence).

In this study, we explore the impact of Hofstede culture on digital financial inclusion in China, using yearly data of digital financial inclusion index spanning from 2011 to 2020 and Chinese regional culture scaled by Hofstede’s cultural dimensions. We find that the unbalanced development in financial inclusion among provinces are positively related to the regional culture. The regions with higher levels of individualism or power distance are facing a less developed digital financial inclusion. Conversely, provinces with a cultural preference for self-indulgence exhibit a promotion effect. The concerns on endogeneity are addressed by adopting a two-stage least squares (2SLS) approach, and the result still holds. Besides, it is also witnessed that public trust preference is a crucial bridge, where trust in banks, strangers, and financial and internet sectors could explain the impacts of individualism, power distance and indulgence respectively. Finally, it is important to underline that these impacts could only be observed in provinces with a better formal institutional environment, indicating the presence of regional heterogeneity.