Does Local Government Debt Boost Industrial Structure Upgrading? The Evidence from China

Issuing local debt is an important way for the government to raise development funds, and its impact on industrial structure upgrading has always been controversial. This paper employs the fixed effect model and the panel data of 30 provinces in China from 2010–2017 to study local government debt’s influence on local industrial structure upgrading progress. Results show that government debt could boost industrial structure upgrading, and this mechanism works via promoting innovation activities. However, such promoting effect brings side effect: the decrease of total factor productivity (TFP). What is more, regional differences are evident: The eastern region is more sensitive to such influence. At this stage, China needs to improve the proportion of productive-debt and keep improving the governance of grassroots officials.