How does financial development affect labour productivity in China? The role of fintech investment

Financial capital flow is an essential part of the national economy system and human resource capital. In this paper, we identify that financial development is an important determinant factor of productivity growth and can affect productivity through financial technology (fintech) investment. By constructing a multi-province, cross-year dataset in China from 2011 to 2021, this paper empirically investigates how fintech investment plays a role in the association between financial development and labour productivity. By examining the paths and possible association between them, we observed that the effect of finance on labour productivity is not reinforced by fintech investment in wealthier region. However, in less developed provinces, fintech investment, as represented by R&D expenditures in financial sector and the digital finance index, does the financial sector’s function in driving productivity growth. Financial development can contribute to increased technology investment in the financial sector, especially in digital finance, which, in turn, contributes to labour productivity in relatively poorer provinces more than in richer ones. Therefore, the government should formulate a finance-related development strategy targeting poorer provinces to stimulate fintech investment and boosts productivity growth.