Industrial Investment and Regional Industry Chain Extension: From the Perspective of Vertical Structure

Promoting Chinese path to modernization with high-quality development needs to give better play to the leading role of government investment. The Chinese government has a preference for investing in upstream sectors and provides support through industrial policies, thus forming a vertical production structure. This paper attempts to introduce the theory of vertical structure into the study of spatial economics, and uses the "156 Project" as a natural experiment to empirically investigate the impact of industrial investment on the extension of regional industry chains. It is found that the more investment a district's upstream industrial sector receives, the higher the proportion and agglomeration level of upstream industrial industries in its long-term industrial structure; in terms of mechanism, due to the existence of vertical structure, investment in upstream industrial industries suppresses the market competitiveness of local related industries, and the higher the upstream degree of the investment industry, the more obvious its inhibitory effect on downstream enterprises. Further analysis shows that increasing the production segmentation length of the invested industry chain helps improve the total factor productivity of local related enterprises. The conclusion of this study indicates that in order to achieve satisfactory long-term results in government industrial investment, it is necessary to reduce market structure distortions at the industry level.