The digital divide and household risky financial investments in China

Abstract

This investigation rigorously examines the impact of the digital divide on household investment participation within emerging financial markets, uncovering multilayered determinants of financial inclusion in increasingly digitalized economies. Utilizing comprehensive survey data from China Family Panel Studies (CFPS) 2020, we employ econometric techniques including probit models, instrumental variables, and Heckman selection procedures to establish robust causal relationships. The empirical analysis reveals three principal findings: (1) the digital divide significantly impedes investment participation, with digitally excluded households demonstrating markedly lower financial market engagement; (2) financial literacy serves as a crucial mediating mechanism, transmitting approximately 40 % of the digital divide's total effect on investment behavior through cognitive pathways; and (3) both social capital and education function as protective factors that attenuate the adverse impact of digital exclusion. These findings advance theoretical understanding by reconceptualizing the digital divide as fundamentally an epistemic rather than merely technological barrier, operating through information acquisition impediments before manifesting in financial behavior. This research contributes to scholarly discourse by integrating technological, social, and human capital perspectives into a comprehensive framework explaining financial participation determinants. The study's implications suggest multidimensional policy approaches combining digital infrastructure development with financial education initiatives and community-based knowledge dissemination strategies to foster inclusive financial participation in the digital age.