This study analyzes the impact of digital financial development on urban innovation levels in China, using an unbalanced panel dataset from 345 county-level cities nationwide between 2015 and 2021. The study also identifies regional disparities in these effects. The findings reveal that the development of digital finance has a significant positive impact on urban innovation levels, exhibiting an inverted U-shaped relationship, where innovation levels initially dip before experiencing a notable rise as digital financial development progresses. Moreover, the tertiary sector in central and coastal regions has a significant positive effect on innovation, while its impact is insignificant in eastern and non-coastal regions and negative in western regions, reflecting the complexity and diversity of China's regional economic structures. Based on these findings, the study suggests that the government should enhance financial support for digital transformation, adopt differentiated policy strategies, and strengthen risk management to promote the deep integration of digital finance and the real economy. In particular, optimizing industrial structure is crucial for improving urban innovation capacity. Looking ahead, digital finance is expected to further stimulate innovation by leveraging technological integration, personalized services, and reducing barriers to financial access. This, in turn, will not only enhance urban innovation capacity but also serve as a new lever for establishing a virtuous cycle in regional digital financial systems.
Jin et al. (Wed,) studied this question.