Will the Enlargement of City Clusters Boost Industrial Upgrading？Empirical Evidence from Counties in the Yangtze River Delta

Abstract

With the great changes in the external environment of China’s economic and social development, the competition among big powers become more intense, and the international economic circulation is restricted. Meanwhile, the COVID-19 epidemic has seriously affected the international industrial chains and supply chains, and shrinking external demands as well as frictions in international economic trade have forced China to accelerate the construction of a new development pattern, with the big domestic circulation as the main body and the dual domestic and international circulation as the mutual promotion. Under this background, the utilization and integration of domestic market brought by regional integration is of great significance to promote industrial upgrading. This paper focuses on the industrial upgrading of city clusters, and tries to identify whether the enlargement of city clusters is an effective way to stimulate regional industrial upgrading. This paper treats the enlargement of the Yangtze River Delta in 2010 as a quasi-natural experiment, uses the synthetic control method（SCM）and the PSM-DID method to simulate and compare the way of industrial upgrading of three regions, including whole counties（cities, districts）, incumbent counties（cities, districts）and new counties（cities, districts）within the integration of the Yangtze River Delta, and draws a robust conclusion that the enlargement of the Yangtze River Delta promotes the industrial technical complexity of the three types of counties（cities, districts）. Furthermore, this paper investigates the heterogeneity among counties, county-level cities and districts, and finds that the enlargement has the greatest impact on districts. Specifically, the promotion effect of districts in incumbent cities is greater than that in new cities; the industrial upgrading effect of county-level cities in incumbent cities is greater than that in new cities; for county-level regions, the industrial structure adjustment of counties in incumbent cities is smaller, and the industrial upgrading effect of counties in new cities is more obvious. Further research confirms that the promotion effect originates from regional integration, which leads to reallocating resources optimally and improving the utilization efficiency of resources among different counties（cities, districts）. From the perspective of resource allocation, the industrial upgrading effect of the enlargement of city clusters is mainly achieved through several specific channels such as giving play to the market scale effect, promoting technological innovation, strengthening government cooperation, and so on. The integration of the Yangtze River Delta not only undertakes the great historical mission of exploring the way for the new development pattern of dual domestic and international circulation, but also shoulders the important task to be the pioneer of China’s innovation in science, technology and industry. To promote the development of regional integration, the key lies in how to effectively reduce the flow barriers of factors among regions through institutional innovation, so as to provide a strong driving force for regional industrial upgrading and building the world’s advanced manufacturing clusters.