Research on the Threshold Effect of Internet Development on Regional Inclusive Finance in China

Round 1

Reviewer 1 Report

Thank you very much for this interesting study.

I have several suggestions to improve the paper.

First, please indicate better the methods of the study in the abstract - now it does not provide much information about the methods.

Then, I'd see the research question stated in the Introduction section. Now it is missing, and it is hard to make any judgements about the relevance of the study and your contribution to existing knowledge in this area. Also, the contribution itself should be reflected in this section.

I do not have seriuos concerns for your Literature review and Theoretical analysis sections; they look logical and comprehensive. However, I'd prefer to see that your hypotheses are based not only on the results of your theoretical framework, but on the previous papers, as it makes them more valid.

In Data and Methods section, I did not find the description of data collection procedure. Neither the databases are clarified. 

The Discussion section is missing, therefore, it is unclear how your findings are linked with the  results of previous studies. The lack of this understanding dilutes the impression about the value of your findings.

In Conclusion, several policy recommendations are proposed and developed. In addition, it would be useful do discuss the limitations of your sudy.

Author Response

Response to Reviewer 1 Comments

Sustainability-2172944

 

Dear Editors and Reviewers:

Thank you very much for taking your time to review and comments concerning our manuscript entitled “Research on the Threshold Effect of Internet Development on Regional Inclusive Finance in China” (Sustainability-2172944). Those comments are all valuable and very helpful for revising and improving our paper. We have studied comments carefully and have made correction and point-by-point response which we hope meet with approval. Our responses are detailed below and highlighted in red. The main changes in the paper and the responds to the reviewer #1 are as follows:

 

English language and style

English language and style are fine/minor spell check required

Response: Thanks for pointing this out. Our revised version has undergone a careful language check.

 

Comments and Suggestions for Authors

Point 1. First, please indicate better the methods of the study in the abstract - now it does not provide much information about the methods.

 

Response: We thank reviewer for reminding us this important point. We have already added much more information about the methods in to the ABSTRACT part in the revised manuscript. (Lines 10-20)

“Abstract The study aims to investigate how the Internet has affected China's financial inclusion from the standpoint of developing Internet technologies. Firstly, with the coefficient of variation method and the principal component analysis method, the financial inclusion index (IFI) and the Internet development index (INT) were built from multiple dimensions based on the 2006-2016 provincial panel data of China. Then the fixed-effect panel threshold model, the fixed-effect estimate, and the 2SLS estimate were used to empirically test the impact of Internet development on inclusive finance in China. We found that China’s financial inclusion was significantly and positively affected by Internet development. Additionally, this effect was nonlinear, and there was a threshold effect on the proportion of Internet users. The development of the Internet had a significant positive effect on financial inclusion when the Internet user proportion (ISP) was higher than 19%, and the effect on IFI became stronger when ISP rose above 53%. This study compensates for the singularity of earlier research, in which Internet finance is usually perceived as a single idea, by thoroughly examining the effects of Internet information technology on the growth of financial inclusion. Based on our findings, we further put forward policy recommendations for the sustainable development of inclusive finance in terms of the intelligent integration and collaboration of Internet communication technologies.”

 

Point 2. Then, I'd see the research question stated in the Introduction section. Now it is missing, and it is hard to make any judgements about the relevance of the study and your contribution to existing knowledge in this area. Also, the contribution itself should be reflected in this section.

 

Response: Thank you very much for this comment. The explanation of the research question and contribution has been added in the Introduction section. (Lines 63-65;71-76)

“Therefore, how have the “Internet +” project and Internet development affected inclusive finance in China? This paper focuses on identifying the internal mechanism responsible for this effect.”

“Some of the potential contributions of this paper are listed as follows:

• In previous literature, Internet finance was often regarded as a whole to study its effect on financial development, while this paper focuses on the impact of Internet information technology on the development of inclusive finance. (2) Through theoret-ical analysis and the threshold model using the Internet user proportion (ISP), the diffusion effect of network externality on the development of financial inclusion was verified, which provides strong evidence for the country to promote the “Internet +” action.”

 

Point 3. I do not have serious concerns for your Literature review and Theoretical analysis sections; they look logical and comprehensive. However, I'd prefer to see that your hypotheses are based not only on the results of your theoretical framework, but on the previous papers, as it makes them more valid.

 

Response: We sincerely appreciate the valuable comment. We have checked the previous papers carefully, added more references to valid our hypotheses. Specific modifications are added in 3.1, 3.2, 3.3 and 3.4 Sections.

“Lohrke et al. (2006) studied the extent to which small and medium-sized businesses can use the Internet to connect directly with customers and confirmed the significant advantages of Internet use in lowering transaction costs of small and medium-sized businesses. As the transition of technology-supported financial intermediation was recognized as a key to poverty reduction, Mader (2016) demonstrated how financial inclusion transformed the theory of change underpinning poverty finance. (Lines 226-232)”

“In the study of the changes in transaction costs brought about by the usage of the Internet in inter-enterprise transactions, Garicano and Kaplan (2001) discovered that there are potentially enormous process improvements and market gains. (Lines 243-245)”

“Using fully modified ordinary least squares (lm-ols) and causal analysis, Vincent et al. (2019) examined Internet use and mobile subscriptions related to financial inclusion and financial sector development in China, India, Nigeria, and South Africa over the period 2009–2017. Their empirical findings demonstrate that Internet use has greatly promoted the growth of inclusive finance and the financial sector. In their empirical research, Evans (2018) and Lenka et al. (2018) investigated the connection and causality between the Internet, mobile phones, and inclusive finance in Africa and the South Asian Regional Association, respectively. They found a significant correlation between the use of the Internet and mobile devices and inclusive finance. Therefore, more people now have access to inclusive finance due to advancements in the Internet and mobile technology.” (Line 273-283)

“According to Ozili’s (2021) discussion about big data and financial inclusion, contemporary information technology has increased the efficiency and risk management level of financial services companies so that an accurate and rapid assessment of the credit and profitability of individuals and enterprises can be made, which solves the credit risk problem caused by information asymmetry.” (Line 298-302)

 

Point 4. In Data and Methods section, I did not find the description of data collection procedure. Neither the databases are clarified.

Response: Thanks for this comment. Following the suggestion of the referee, we have added more details of our collection process in Section 4.1. (Lines 328-334)

“The data used in this paper was collected from the Website of the National Bureau of Statistics of China, China’s regional financial operation reports issued by the People’s Bank of China, and the WIND database. Our study spanned from 2006 to 2016. Since some data were missing in the calculation of the IFI, we used interpolation to calculate the index based on the existing data. To increase the robustness of estimates, we also excluded those observations with extreme values, obtaining a balanced panel of 31 provinces, municipalities, and autonomous regions and 341 observations in total.”

Point 5. The Discussion section is missing. Therefore, it is unclear how your findings are linked with the results of previous studies. The lack of this understanding dilutes the impression about the value of your findings.

 

Response: Thanks for this great point. Following your suggestion, we have added the linked previous studies’ findings in 5.2 and 5.3 Section.

“The findings of this study agree with the majority of earlier findings in this area. The growth of the Internet has a tremendous impact on the banking industry, the macro and micro economies are influenced by the usage of the Internet and mobile devices in varying degrees, and under these influences, the growth effect on inclusive finance is produced (Alderete, 2017; Bertschek & Niebel, 2016; Kpodar and Andrianaivo, 2011; Pathak & Gupta, 2017).” (Line 519-524)

“This point is consistent with the conclusion of Li et al. (2022), Liu et al. (2021) and Su et al. (2021) that the popularization of Internet technology makes trans-regional finance more convenient and produces network spillover effect on inclusive finance.” (Lines 569-574)

 

Point 6. In Conclusion, several policy recommendations are proposed and developed. In addition, it would be useful do discuss the limitations of your study.

 

Response: Indeed, the discussion on the limitations of the study was ignored. Thank you very much for your suggestion. Discussion on the limitations of the research has been added to Conclusion section. (Lines 658-666)

“This study on the connection between inclusive finance and the Internet still has certain limitations. First of all, the research was only undertaken in a single nation, which could be biased when extrapolated to other contexts. This study will be more understandable and significant if it is expanded to include the growth of inclusive finance, digital money, and the Internet of Things in emerging nations. The second is one to the method, the impact on the development of the Internet and inclusive finance is complicated, the indicators we create can contain measurement mistakes, and data gathering can be made better in the future.”

 

Added reference list

1. Alderete, M. V. (2017). Mobile broadband: A key enabling technology for entrepreneurship? Journal of Small Business Management, 55(2), 254–269.
2. Bayero, Musa A. (2015). Effects of Cashless Economy Policy on Financial Inclusion in Nigeria: An Exploratory Study.Procedia Social and Behavioral Sciences,172,49–56.
3. Bertschek, I., & Niebel, T. (2016). Mobile and more productive? Firm-level evidence on the productivity effects of mobile internet use. Telecommunications Policy, 40(9), 888–898.
4. Chatterjee, A., & Das, S. (2021). Information communication technology diffusion and financial inclusion: An inter-state analysis for india.Innovation and Development, 11(1), 1-23.
5. Evans, O. (2018). Connecting The Poor: The Internet, Mobile Phones and Financial Inclusion in Africa. Digital Policy, Regulation and Governance,
6. Garicano, L., & Kaplan, S. N. (2001). The effects of business-to-business E-commerce on transaction costs.The Journal of Industrial Economics, 49(4), 463-485.
7. Kpodar, K., & Andrianaivo, M. (2011). ICT, financial inclusion, and growth evidence from African countries (No. 11-73). International Monetary Fund.
8. Lenka, S. K., & Barik, R. (2018). Has expansion of mobile phone and internet use spurred financial inclusion in the SAARC countries?Financial Innovation (Heidelberg), 4(1), 1-19.
9. Li, Y., Wang, M., Liao, G., & Wang, J. (2022). Spatial spillover effect and threshold effect of digital financial inclusion on farmers’ income Growth—Based on provincial data of china.Sustainability (Basel, Switzerland), 14(3), 1838.
10. Liu, X., Zhu, J., Guo, J., & Cui, C. (2021). Spatial association and explanation of China’s digital financial inclusion development based on the network analysis method.Complexity (New York, N.Y.), 2021, 1-13.
11. Lohrke, F. T., Franklin, G. M., & Frownfelter-Lohrke, C. (2006). The internet as an information conduit: A transaction cost analysis model of US SME internet use.International Small Business Journal, 24(2), 159-178.
12. Mader， (2016).Card crusaders, cash infidels and the Holy Grails of digital financial inclusion, Behemoth-A Journal on Civilisation, 9 (2), 59-81
13. McKay, C., and M. Pickens. (2010). Branchless Banking 2010: Who’s Served? At What Price? What Next?CGAP Focus Note 66. London: CGAP.
14. Ozili, Peterson K.(2021).Big Data and Artificial Intelligence for Financial Inclusion: Benefits and Is. Artificial Intelligence Fintech, and Financial Inclusion.
15. Pathak, A., & Gupta, A. (2017). Digitisation and development: macro relation and micro experience. Proceedings of the 10th International Conference on Theory and Practice of Electronic Governance, New Delhi(pp. 450–458). ACM
16. Su, Y., Li, Z., & Yang, C. (2021). Spatial interaction spillover effects between digital financial technology and urban ecological efficiency in china: An empirical study based on spatial simultaneous equations.International Journal of Environmental Research and Public Health, 18(16), 8535.
17. Vincent, O., & Evans, O. (2019). Can cryptocurrency, mobile phones, and internet herald sustainable financial sector development in emerging markets?Journal of Transnational Management, 24(3), 259-279

 

This letter is our point-by-point response to the comments raised by the reviews. The comments are produced and our responses are given directly afterward in a different color from the authors in the revised copy.

We would also like to thank you for allowing us to resubmit a revised copy of the manuscript.

We hope that the revised manuscript may address the concerns raised by the reviewers and will have the opportunity to be published in Sustainability.

Author Response File: Author Response.pdf

Reviewer 2 Report

The topic of the paper is interesting. The proposed research investigates an emerging issue in the field.

In my opinion, at this stage, the authors should revise the methodological approach as follows:

1.      Section 4.2

-        The indicators Insurance density and Insurance depth should be defined

-        The method based on the coefficient of variation used to build the financial inclusion index is not adequately described. For example, the description does not introduce the notations: what n represents, it is unclear what indices i and j are referring to. This observation is also available for all the equations in the paper.

-        The indicators selected to capture the supply dimension could be correlated. Please explain why this is not relevant to your approach.

2.      Section 4.3

-        The authors consider that factor analysis is the same as principal component analysis, which is a mistake (lines 338-340).

-        The value of KMO is relatively small to indicate that factor analysis is suitable for the data.

-        A discussion about the correlation matrix should be included.

-        The authors should explain the data structure they compute KMO and Bartlett test. Furthermore, they don’t discuss how INT was built and if it is relevant.

-        Lines 343-345 – it is not clear which is the connection with the previous statements in section 4.3

3.      Section 4.5

Authors should justify why they selected a Fixed effects model.

4.      Section 5.1

 

-        The information from Figure 3 is redundant. Since the methodology is based on a panel data approach, authors should emphasize the heterogeneity encountered among provinces and years. 

 

Author Response

Response to Reviewer 2 Comments

Sustainability-2172944

 

Dear Editor and Reviewers:

Thank you very much for taking your time to review and comment concerning our manuscript entitled “Research on the Threshold Effect of Internet Development on Regional Inclusive Finance in China” (Sustainability-2172944). Those comments are all valuable and very helpful for revising and improving our paper. We have studied comments carefully and have made correction and point-by-point response which we hope meet with approval. Our responses are detailed below and highlighted in red. The main changes in the paper and the responds to the reviewer #2 are as follows:

 

English language and style

Moderate English changes required

Response: Thanks for pointing this out. Our revised version has undergone a careful language check.

Comments and Suggestions for Authors

Point 1. Section 4.2

- The indicators Insurance density and Insurance depth should be defined

Response: Thank you for reminding us. The explanation of Insurance density and Insurance depth has been added to Table 1. (Line 402)

“Insurance density (Insured amount per capital), Insurance depth (Insurance income/GDP)”

- The method based on the coefficient of variation used to build the financial inclusion index is not adequately described. For example, the description does not introduce the notations: what n represents, it is unclear what indices i and j are referring to. This observation is also available for all the equations in the paper.

Response: We apologize for the analysis not being clear, thanks for those comments. We did find that there was a problem with the equation here, which has now been corrected (Lines 366-370). We also clarified the method we used to calculate INT. (Line 413)

 (i=1,2,…,n; j=1,2,…,m)

“Where the initial value of the jth index in the ith sample is ,  represents the dimensionless indicator after standardization,  represents the minimum value of each indicator, and  represents the maximum value of each indicator.”

- The indicators selected to capture the supply dimension could be correlated. Please explain why this is not relevant to your approach.

Response: Actually, it’s nearly impossible to escape the topic of data correlation. Therefore, in this paper, we adopted the coefficient of variation to calculate the inclusive finance index, so as to avoid the error caused by correlation as much as possible. CV is a measure of relative variability, it expresses the ratio of the standard deviation to the mean and can be applied to either supply or demand variables. By measuring CV, we can assess the degree of dispersion around the mean for a particular variable and compare it to the mean value, providing a normalized measure of variability. It is important to note that CV measures relative variability, not absolute variability. This means that the CV can be used to compare the variability of different variables, even if they have different units or scales. Importantly, CV provides a way to make meaningful comparisons between variables, regardless of their correlation, which is why it can be used in inclusive finance indices to measure variability in both supply and demand. In conclusion, the use of CV in inclusive finance indices is motivated by the need to provide a normalized measure of variability that can be used to compare different variables, regardless of their correlation.

We have added a brief description of correlation, as follows:

“It is important to note that, the coefficient of variation approach was used here since it can assess markers of relative variability and enable accurate comparisons of variables, regardless of their correlation (Bedeian & Mossholder, 2000). In order to quantify the variability of supply and demand, the coefficient of variation approach is utilized in this study to calculate the financial inclusion index.” (Lines 342-346)

 

Point 2. Section 4.3

- The authors consider that factor analysis is the same as principal component analysis, which is a mistake (lines 338-340).

Response: Thank you very much for this comment. We have corrected the description and clarified that the method we use is principal component analysis.

- The value of KMO is relatively small to indicate that factor analysis is suitable for the data.

Response: Thanks for this comment. We admit that the value of KMO is indeed relatively small, however, according to the literature, although not sufficiently large, the KMO value greater than 0.6 is sufficient for principal component analysis (Olawale and Garwe, 2010; Shrestha, 2021). Several papers also apply KMO≥0.5 as their standard (Wang et al. 2022; Suzianti and Paramadini, 2021).

Olawale, F., & Garwe, D. (2010). Obstacles to the growth of new SMEs in South Africa: A principal component analysis approach. African journal of Business management, 4(5), 729.

Shrestha, N. (2021). Factor analysis as a tool for survey analysis. American Journal of Applied Mathematics and Statistics, 9(1), 4-11.

Wang W, Lin W, Bao Z, Dai X, Lin Q (2022). Study on the influence of COVID-19 on the growth of China’s small and medium-sized construction enterprises. PLOS ONE 17(6): e0266315.

Suzianti, A., & Paramadini, S. A. (2021). Continuance Intention of E-Learning: The Condition and Its Connection with Open Innovation. Journal of Open Innovation: Technology, Market, and Complexity, 7(1), 97. Elsevier BV.

- A discussion about the correlation matrix should be included.

Response: Thanks for this comment. Following the suggestion of the referee, we have added the correlation matrix as Table 3. (Line 455)

- The authors should explain the data structure they compute KMO and Bartlett test. Furthermore, they don’t discuss how INT was built and if it is relevant.

Response: We apologize for the description not being clear, thanks for those comments. We have clarified the data structure, and added a principal components table. We also added a detailed procedure of calculating the INT indicator. (Lines 439-458)

- Lines 343-345 – it is not clear which is the connection with the previous statements in section 4.3

Response: Thank you for this comment. We have clarified our description here. (Line 432)

 

Point 3. Section 4.5

Authors should justify why they selected a Fixed effects model.

Response: The fixed effects model can effectively control the unobservable individual effects, which may help to mitigate the endogeneity caused by omitted variables to a certain extent. Individual unobservable heterogeneity intercept is frequently related to or interfered with explanatory variables in most economic data. Therefore, the fixed effect model is chosen. In addition, before running fixed-effect panel threshold model, in order to observe the overall effect of internet development on inclusive finance, we performed fixed-effect estimate.

 

Point 4. Section 5.1

- The information from Figure 3 is redundant. Since the methodology is based on a panel data approach, authors should emphasize the heterogeneity encountered among provinces and years. 

Response: Thanks for this comment. We have removed Figure 3. In addition, we have added two figures to analysis the heterogeneity encountered among provinces and years. 

 

Figure 3. Average value of IFI over time.

 

Figure 4. Average value of INT across provinces.

 

Added reference list

1. Bedeian, A. G., & Mossholder, K. W. (2000). On the use of the coefficient of variation as a measure of diversity. Organizational Research Methods, 3(3), 285-297.
2. Olawale, F., & Garwe, D. (2010). Obstacles to the growth of new SMEs in South Africa: A principal component analysis approach. African journal of Business management, 4(5), 729.
3. Shrestha, N. (2021). Factor analysis as a tool for survey analysis. American Journal of Applied Mathematics and Statistics, 9(1), 4-11.

 

 

This letter is our point-by-point response to the comments raised by the reviews. The comments are produced and our responses are given directly afterward in a different color from the authors in the revised copy.

We would also like to thank you for allowing us to resubmit a revised copy of the manuscript.

We hope that the revised manuscript may address the concerns raised by the reviewers and will have the opportunity to be published in Sustainability.

Author Response File: Author Response.pdf