Unveiling nonlinear effects of Digital Inclusive Finance on urban-rural integration: A threshold panel analysis of China

This paper examines the nonlinear effects of Digital Inclusive Finance (DIF) on urban-rural integration (URI) using a provincial panel for mainland China (31 provinces, 2011-2023). We construct a multidimensional URI index and decompose DIF into coverage breadth (D1), usage depth (D2) and digitalization level (D3). Estimation proceeds with two-way fixed-effects models and Hansen-style panel threshold regressions with bootstrap inference; robustness checks include placebo tests and instrumental-variable specifications. The evidence shows that DIF's impact on URI is regime-dependent: marginal returns are limited at low development levels but increase sharply once DIF and complementary institutional conditions cross empirically identified thresholds. Disaggregation reveals that usage depth (D2) consistently promotes integration, whereas the benefits of coverage (D1) and digitalization (D3) materialize mainly in digitally mature regimes. Traditional finance exhibits declining marginal contribution beyond its effective range, underlining the catalytic role of digital systems. We document heterogeneity across regions and show that negative baseline coefficients on openness and education reflect spatial concentration rather than intrinsic harms. The findings reconcile mixed results in prior work and imply that policy should be threshold-aware: prioritize foundational access where coverage is low, while in advanced contexts emphasize usage, platform interoperability, and regulatory safeguards to manage platform concentration and distributional risks.