The Impact of Digital Inclusive Finance on Employment in Micro- and Small Enterprises: An Empirical Analysis Based on the China Micro- and Small-Enterprise Survey (CMES) Database

Digital inclusive finance has become an important policy instrument for promoting inclusive growth and decent employment. Using matched data from the China Micro- and Small-Enterprise Survey (CMES) and the Peking University Digital Financial Inclusion Index, this study applies a bivariate Probit model to 3263 micro- and small enterprises (MSEs) across 28 Chinese provinces to examine how digital inclusive finance relates to MSEs’ labor hiring decisions, distinguishing between formal and informal employment and exploring the underlying mechanisms. Digital inclusive finance is positively associated with formal employment and negatively associated with informal employment in MSEs. Mediation analysis shows that credit constraints are an important transmission channel, accounting for 9.17% and 10.58% of the associations with formal and informal employment, respectively. The breadth of coverage and depth of use of digital inclusive finance are positively associated with formal employment and negatively associated with informal employment, whereas the degree of digitalization exhibits the opposite pattern. Digital inclusive finance also alleviates supply-side credit constraints faced by MSEs but shows no significant relationship with demand-side constraints. These findings offer policy implications for promoting inclusive and decent employment in MSEs.