Unlocking Green Growth: How Digital Finance Fosters Urban Sustainability via Innovation and Policy Synergy

The rapid advancement of digital finance profoundly impacts urban development by expanding and deepening financial services for the real economy, with significant ecological and economic implications. This study hypothesizes that digital finance significantly enhances urban green development by simultaneously promoting ecological and economic objectives. To test this hypothesis, we investigate the influence of digital finance on urban green development from theoretical and empirical perspectives. Utilizing panel data from 265 prefecture-level and above cities in China (2011–2023), we comprehensively analyze the impact, underlying mechanisms, and the moderating role of environmental policies. Empirical results confirm our main hypothesis: digital finance significantly enhances urban green development. Robustness checks, including variable substitution, difference-in-differences, and instrumental variable estimations, confirm the results’ stability. Heterogeneity analysis reveals that the positive effect is more pronounced in peripheral cities (vs. core cities), central and western regions (vs. eastern region), and resource-based cities (vs. non-resource-based), highlighting digital finance’s role in mitigating regional development imbalances. Mechanism analysis indicates that green technology innovation is the primary channel through which digital finance fosters green development. Furthermore, the beneficial impact of digital finance is significantly amplified in cities with stringent environmental regulations, underscoring the critical importance of well-designed environmental policy. Overall, the evidence robustly supports the hypothesis that digital finance promotes urban green development. This research provides robust empirical evidence and valuable policy insights for leveraging digital finance to advance sustainable urban development.