Much attention has been paid to the promotion of inclusive economic and social development by digital inclusive finance. What is the effect of technological innovation? It is an issue that cannot be ignored in urban innovation and development in the era of digital economy. Based on the panel data of 270 prefecture-level and above cities in China from 2011 to 2018, this paper empirically examines the impact and mechanism of digital inclusive financial development on urban technological innovation.

The conclusion shows that: First, digital inclusive finance can promote China’s urban technological innovation and improve its “low-end lock-in” dilemma. With digital inclusive finance incentives, cities are more inclined to choose to engage in substantial innovation in high-end technologies, and the finding holds after a series of robustness tests including instrumental variables. Second, alleviating financing and credit constraints and promoting market consumer demand constitute an effective mechanism for digital inclusive finance to improve the “low-end lock-in” dilemma of urban technological innovation at both ends of “supply-demand”. Moreover, the “supply-demand” mechanism shows a biased channel effect on urban high-end technological innovation. Specifically, on the supply side, digital inclusive finance can improve the competitiveness of the urban banking industry and promote the supply of traditional finance, thus promoting overall urban technological innovation, high-end technological innovation and low-end technological innovation. On the demand side, digital inclusive finance can promote the upgrading of consumption structure and the expansion of consumption scale, thus promoting urban high-end technological innovation, but the impact on urban overall technological innovation and low-end technological innovation is not significant. Third, the positive external effect of digital inclusive finance on improving the “low-end lock-in” dilemma of urban technological innovation is more obvious in cities with a high market level and a high Internet level. At the same time, there is a “timely help” effect on the overall technological innovation of cities with a low market level and a low Internet level. The findings provide robust empirical evidence for the effective use of digital inclusive finance serving urban innovation and coordinated development, and also have implications for accelerating the digital transformation of cities and financial industries.