Digital finance, as an innovative form of financing, has a distinct impact on FDI inflow compared to traditional finance. This paper provides a theoretical analysis of the impact of digital finance on FDI inflow from both supply-side and demand-side perspectives. Based on data from prefecture-level cities in China, this study reveals the significant role of digital finance in facilitating FDI inflow. The advancement of digital finance not only enhances financial market efficiency and attracts foreign investments through its financial effects but also stimulates regional innovation, entrepreneurship, and consumer spending, resulting in increased FDI inflow due to its economic effects. The comparative analysis suggests that traditional financial development impedes FDI inflow. Traditional finance can alleviate its inhibitory effect on FDI inflow by promoting innovation and entrepreneurship, but it lacks financial effects and cannot attract FDI by expanding the consumer market. The divergent roles of these two financial forms may be attributed to China's traditional finance focusing on scale expansion, while digital finance enhances financial efficiency for qualitative development.
JEL classification : E44, F21, G10