Too costly to make a difference: An examination on the relationship between online financing and economic growth

Author:

Deng Jiapin1,Liu Yanchu1ORCID,Xiao Wenyue1

Affiliation:

1. Department of Finance Lingnan College, Sun Yat‐sen University Guangzhou China

Abstract

AbstractWhile facilitating people's access to finance and promoting financial coverage, online financing activities involve high capital costs that suppress economic growth. Using 282 Chinese cities during 2011–2020 as the sample, we examine the relationship between online financing and economic growth. Exploiting a variety of models, we find that online financing activities do not have significant effects on economic growth. Further evidence shows that the insignificant relationship between online financing and economic growth also exists in cities with less developed formal financial systems. Our analysis based on the context where borrowers and lenders do not know each other offline implies that the technology intended to promote financial coverage, if not reducing information asymmetry and hence the cost incurred in financial transactions, does not necessarily lead to desirable economic and social outcomes.

Funder

National Natural Science Foundation of China

Publisher

Wiley

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