Does Fiscal Expenditure Promote the Upgrading of Regional Manufacturing Industry? Empirical Test Based on the Dual Perspective of Infrastructure and Basic Public Services

Abstract

The Fifth Plenary Session of the 19th CPC Central Committee set the tone that China’s manufacturing industry should upgrade to advanced, intelligent and high quality. In the traditional theory of industrial structure upgrading, fiscal expenditure is not the main influencing factor. In the new pattern of “dual circulation” development of Chinese economy, the important role of government in economic development should not be ignored in the study of the high-end upgrading of manufacturing industry. Using the panel data of 28 provinces in China from 2008 to 2016, this paper deeply studies the economic effect of the most important expenditure on basic public services and infrastructure on the upgrading of manufacturing industry, as well as the regional heterogeneity and the nonlinear characteristics of the technological progress stage. It is found that the economic effect of general budget expenditure and basic public service expenditure on the high-end upgrading of manufacturing structure shows the characteristics of strong heterogeneity and marginal decline, which mainly comes from the promotion effect of the two types of fiscal expenditure in the eastern region and the hindrance effect in the central and western regions. Especially in the five western provinces where industrialization is slow and heavily dependent on transfer payments, infrastructure expenditure and basic public service expenditure show negative economic effects around 2010, but this does not completely mean the failure of the policy effect of local governments. Poverty reduction and poverty alleviation in such underdeveloped areas often rely more on the development of labor-intensive manufacturing industry. With the improvement of the level of innovative technological progress, the role of basic public service expenditure in promoting the upgrading of manufacturing industry will be gradually strengthened. This paper holds that under the new pattern, the eastern provinces should increase investment in information infrastructure, promote the reform of affordable housing, and release the restrictions on both the household registration of high-skilled talents and the school district of children’s basic education. The central provinces should give further play to the role of the market in allocating resources, and focus on improving the quality of public services such as education and medical treatment to the eastern region, so as to better undertake the transfer of high-skilled talents and manufacturing industry in the eastern region. For special provinces with slow industrialization and mainly relying on central transfer payments, we can appropriately increase the proportion of special transfer payments, strengthen the guidance of subsidies and financial policies on social capital, and stimulate the vitality of market players. Under the background of “tax cut and fee reduction”, this paper provides empirical evidence for the improvement of government fiscal expenditure efficiency, the regional policy design of the upgrading of manufacturing industry, and the optimization of fiscal expenditure structure.