Coastal Education & Research Foundation, Inc.

Industrial Structure Changes, Spatial Spillover and Economic Growth in the Yangtze River
Delta
Author(s): Liyuan Shi
Source: Journal of Coastal Research , SUMMER 2020, SPECIAL ISSUE NO. 107. Current
Advancements in Marine and Coastal Research for Technological and Sociological
Applications (SUMMER 2020), pp. 377-382
Published by: Coastal Education & Research Foundation, Inc.

Stable URL: https://www.jstor.org/stable/10.2307/48640726

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 Journal of Coastal Research SI 107 377–382 Coconut Creek, Florida 2020

Industrial Structure Changes, Spatial Spillover and Economic

Growth in the Yangtze River Delta
Liyuan Shi*

Beijing Union University

Beijing 100025, China
www.cerf-jcr.org
ABSTRACT

Shi, L.Y., 2020. Industrial structure changes, spatial spillover and economic growth in the Yangtze River
Delta. In: Qiu, Y.; Zhu, H., and Fang, X. (eds.), Current Advancements in Marine and Coastal Research
for Technological and Sociological Applications. Journal of Coastal Research, Special Issue No. 107, pp.
377-382. Coconut Creek (Florida), ISSN 0749-0208.

www.JCRonline.org Based on the data of 41 cities in the Yangtze River Delta from 2003 to 2016, this paper constructs a spatial
Durbin model (SDM) and empirically tests the relationship between the industrial structure changes and
economic growth. The results show that the industrial structure rationalization is not only conducive to the
promotion of local economic growth, but also has a positive spatial spillover effect on other spatial neighboring
cities. The industrial structure upgrading has a significant negative impact on the economic growth, and has
a significant negative spatial spillover effect. Therefore, cities in the Yangtze River Delta should focus on
improving the industrial structure rationalization and it is not appropriate to overemphasize the upgrading of
industrial structure.

ADDITIONAL INDEX WORDS: Structure rationalization, industrial structure upgrading, economic growth,
spatial spillover effects.

INTRODUCTION social production efficiency, thus restricting economic growth

The Yangtze River Delta is located in the convergence zone of
The Belt and Road and Yangtze River Economic Belt. It plays a
decisive role in China’s overall modernization and opening up.
The total economic output of the Yangtze River delta accounts
for about 1 / 4 of the whole country, and the labor productivity is
in the forefront of the whole country. In 2008, the State Council
raised the regional economic development of the Yangtze River
Delta to a national development strategy. The change of industrial
structure is an important variable affecting economic growth. In
recent years, important changes have taken place in the industrial
structure of the Yangtze River Delta. So, how does the changes
of industrial structure affect the economic growth of the Yangtze
River Delta? Considering the spatial relevance of economic
development, how does the industrial structure change of a city
affect the economic growth of adjacent cities?
Literature Reviews
Early studies generally believed that the transformation from
agriculture to industry optimized the allocation of production
factors, and then improved the productivity level of the whole
society, thus promoting economic growth (Chenery, Robinson,
and Syrquin, 1986; Kuznets, 1957). However, in the late stage
of industrialization, the transfer of production factors from the
industrial sector with high labor productivity growth to the service
sector with low productivity growth will lead to the decline of
DOI: 10.2112/JCR-SI107-086.1 received 19 May 2020; accepted in
revision 16 June 2020.
*Corresponding author: Liyuan.shi@buu.edu.cn
©
Coastal Education and Research Foundation, Inc. 2020
(Gregory and Griffin, 1974; Maddison, 2006; Peneder, 2003). For
developing countries in particular, premature “deindustrialization”
can undermine economic growth (Rodrik, 2016).
In recent years, China’s economic growth has stepped into a
“new normal”. Is this the “structural slowdown” caused by the
changes of industrial structure? The research shows that with the
improvement of China’s market-oriented degree, the driving force
of industrial structure changes on economic growth is indeed
weakening, gradually giving way to technological progress (Li
and Deng, 2018; Liu and Zhang, 2008). If we measure the changes
of industrial structure from the two dimensions, rationalization
of industrial structure plays a stable role in promoting economic
growth, but upgrading of industrial structure may inhibit
economic growth (Che, Deng, and Chen, 2019; Gan, Zheng, and
Yu, 2011; Shen and Guo, 2019). Some scholars also pay attention
to the regional differences of the impact of industrial structure
changes on economic growth, and find that the economic effects
of industrial structure changes are different in eastern, central and
western regions (Li and Deng, 2017; Tao and Fang, 2016).
The Yangtze River region is the growth pole of China’s
economic development. However, there are few studies on the
relationship between industrial structure changes and economic
growth in the Yangtze River Delta. Some researches focus on
the process of spatial diffusion of manufacturing industry in
the process of regional economic developmen, and under the
background of accelerated industrial transfer, the change of the
spatial distribution pattern of the Yangtze River Delta economy
(Chen, 2007; Liu and Lv, 2005; Yan and Yang, 2017).
The above conclusions show that: the effect of industrial
structure changes on economic growth is different in different

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378 Shi

regions with different levels of economic development; regional

industrial structure changes and economic growth both have
obvious spatial relevance. When examining the impact of  1
industrial structure changes on economic growth, if we give up  wij
= ,i ≠ j
 Yi − Y j  (3)
the consideration of spatial correlation, the regression model
and conclusion may be biased. Therefore, this paper takes 
 w= ij 0,=
i j
41 cities in the Yangtze River Delta as research samples, and
empirically tests the direct effects and indirect spatial spillover
where, Yi is the average per capita GDP of city i during the
effects of industrial structure changes on economic growth from
sample period.
the perspective of spatial interaction by establishing spatial
The spatial correlation effect of regional economic growth
econometric model.
caused by the change of industrial structure through the flow of
production factors, industrial transfer and strategic interaction
METHODS
between local governments may be the result of the joint action
Spatial Data Analysis
of two spatial forces of geographical proximity and economic
Before establishing the spatial econometric model, we need
correlation. Therefore, this paper further constructs the spatial
to examine whether the data have spatial correlation. In this
weight matrix W_GE of geographical and economic distance
paper, Moran’s I is used to measure the spatial autocorrelation of
nesting by drawing lessons from Cui et al. (2017).
variables. Moran’s I is defined as follows:
y y y 
∑ ∑ w ( xi − x ) ( x j − x )
n n
_ GE W _ G × diag  1 , 2 ,………, i  
W= (4)
I= =i 1 =j 1 ij
 (1)  y y y
∑ ∑
2 n n
S =i 1 =j 1 ij
w
where, W_G is the spatial weight matrix of geographical distance,
yi is the average per capita GDP during each city sample period,
∑ (x
n
− x)
2

where, S 2 = i =1 i
, is the sample variance, and wij is the y is the average per capita GDP during all city samples period.
n The weight matrix of geographic distance space W_G is set as
(i, j) element of the spatial weight matrix. The value of Moran’s
follows:
I is located in the interval [-1,1], greater than 0 indicates positive
autocorrelation; less than 0 indicates negative autocorrelation; if  1
Moran’s I is equal to 0, it indicates that the spatial distribution is =wij ,i ≠ j
 d ij  (5)
random and there is no spatial autocorrelation.  w= 0,=
 ij i j

Model Setting
d ij is the spherical distance between city i and city j.
According to Elhorst (2012), dynamic space Durbin model can
be written as follows:
Variable Description
n (1) Dependent Variable
Ø + τ yi ,t −1 + δ ∑wij y jt +
yit = In this paper, the dependent variable is the real GDP of each
j ≠i
 (2) city, which is treated with logarithm and recorded as lnGDP. The
n n
real GDP is adjusted by the nominal GDP according to the GDP
η ∑wij y j ,t −1 + β xit + ν ∑wij x jt + ε it
j ≠i j ≠i
deflator of the provinces where the cities are located in the base
period of 2003.
Among them, yit is the dependent variable,
n
yi ,t −1 is the first- (2) Core Independent Variables
The core independent variables of this paper are rationalization
order lag of the dependent variable, ∑w y
j ≠i
ij jt is the space lag of
and upgrading of industrial structure. The rationalization level
n
the dependent variable, ∑w y ij j , t −1 is the space-time lag of the of industrial structure is measured by the Theil index defined by
j ≠i Gan, Zheng, and Yu (2011), which is recorded as TL. The specific
dependent variable. τ , δ and η represent the response functions calculation formula is:
of time lag, space lag and space-time lag of the dependent variable
n
respectively. xit represents the independent variables. ∑w x ij jt  Yi 
j ≠i n
Y L 
represents the space lag of the independent variables.  
TL = ∑  i  ln  i   (6)
i =1  Y  Y 
Setting of Spatial Weight Matrix  L 
 
In this paper, the economic distance matrix and the economic
geography nested matrix are synthetically used for spatial where Y represents output value, L represents employment, i
econometric analysis. Due to the closer relationship between represents industry, n represents number of industrial sectors,
cities with similar economic development level, firstly, according Y
and represents productivity. When the economy is balanced,
to the economic spatial attribute of each city, the economic L Y Y
distance spatial weight matrix W_E is constructed. Referring to the labor productivity of each industry is equal, i = , so TL =
Li L
Lin (2005), the weight matrix of economic distance space is set 0. Therefore, the closer the Theil index is to 0, the more reasonable
as follows: the industrial structure is.

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 Spatial Panel Model of Economic Growth Effect of Industrial Structure Changes 379

The upgrading of industrial structure is measured by the ratio of
the output value of the tertiary industry to the output value of the
secondary industry, which is recorded as TS.
(3) Control Variables
This paper selects six control variables: fixed assets investment,
labor input, government financial expenditure, human capital
investment, science and technology input, and foreign direct
investment. Fixed asset investment, recorded as lninv. Labor input
is recorded as lnl. The government expenditure is recorded as
lngov. Human capital investment, recorded as edu. It is measured
by the proportion of education expenditure in the financial
expenditure of local government. Science and technology input
is recorded as tec. It is measured by the proportion of science
expenditure in local government expenditure. Foreign direct
investment is recorded as fdi. It is measured by the proportion of
GDP of foreign direct investment in each city.
December 2019, the planning scope of the Yangtze River Delta
is determined to be all regions of Jiangsu, Zhejiang, Anhui and
Shanghai) in the Yangtze River Delta from 2003 to 2016 as the
research sample, and all the data are from CSMAR database.
RESULTS
Spatial Correlation Analysis
This paper uses global Moran’I to analyze the spatial correlation
among the real GDP of 41 cities in the Yangtze River Delta from
2003 to 2016. Moran’I of each year with the economic geography
nested matrix as the spatial weight matrix is shown in Table 1. The
results show that Moran’I of real GDP is positive and significant
at the level of 1%, indicating that there is a significant positive
spatial correlation between the economic growth of cities in the
Yangtze River Delta. Therefore, a spatial econometric model
should be established to estimate the spatial spillover effects.

Data Sources Regression Results of SDM Models

This paper takes the panel data of 41 prefecture level cities The regression results of dynamic spatial Durbin model with
(According to the “outline of regional integration development spatial, time and space-time lag term of economic growth are
plan of the Yangtze River Delta” issued and implemented in shown in Table 2. Under the spatial weight matrix of economic

Table 1. Moran’s I of lngdp under w_ge.

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Morans’I 0.116 0.116 0.112 0.112 0.112 0.109 0.107 0.105 0.101 0.100 0.100 0.098 0.052 0.096
P-value 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000

Table 2. Regression results of SDM model.

W_E W_GE
Variables
Fixed Effect Dynamic SDM Fixed Effect Static SDM Fixed Effect Dynamic SDM Fixed Effect Static SDM
TL -0.282*** -0.354*** -0.294*** -0.351***
TS -0.079** -0.064* -0.066** -0.045
lnl 0.037** 0.050*** 0.043** 0.054
lni 0.208*** 0.263*** 0.2245*** 0.273***
lngov 0.046*** 0.063*** 0.050*** 0.063***
tec 0.232 0.003 0.525 0.397
edu 0.233 0.472** 0.294 0.492
fdi -4.444*** -4.259*** -4.468*** -4.289***
lngdp(-1) 0.103*** 0.115***
W*lngdp 0.204*** 0.158** 0.088 -0.048
W*lngdp(-1) 0.049 -0.302*
W*TL(-1) 0.126 0.160 -0.613* -0.341
W*TS(-1) -0.302*** -0.407*** -0.689*** -0.531***
W*lnl 0.039 0.043 0.092 0.105
W*ni -0.070** -0.096** 0.071 -0.097
W*lngov -0.058** -0.065** 0.001 -0.021
W*tec -0.515 -0.028 -5.221** -2.791
W*edu 1.040** 0.927** 3.572*** 2.342***
W*fdi 0.693* 0.388 -5.581*** -3.237
log-lik 609.1019 582.6312 608.1802 608.1802
R2 0.8793 0.8567 0.8802 0.8565
N 533 574 533 574

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380 Shi

distance, the regression coefficient of time lag term of economic
growth is 0.103, which is significant at the level of 1%. It shows
that the economic growth of each city has strong inertia. The
regression coefficient of the lag term of economic growth is
0.204, which is significant at the level of 1%. It shows that the
spatial spillover effect does exist in the economic growth of cities
in the Yangtze River Delta, that is, the economic growth of a city
has a positive spillover effect on the urban economic growth with
economic spatial relationship. The regression coefficient of the
time-space lag of economic growth is positive, but not significant.
It shows that the economic growth of other cities in the last period
has no significant impact on the economic growth of local city.
The regression coefficient of TL is -0.282, which is significant
at the level of 1%, indicating that the rationalization of industrial
structure of each city has a significant role in promoting economic
growth. The regression coefficient of spatial lag term of TL is not
significant, indicating that the improvement of rationalization of
industrial structure of other cities has no significant impact on
economic growth of local city. The regression coefficient of TS
is -0.079, which is significant at the level of 5%, indicating that
the industry Structural upgrading significantly hinders economic
growth. The regression coefficient of spatial lag term of TS is
-0.302, which is significant at the level of 1%, indicating that the
upgrading of industrial structure in other cities has a negative
spatial spillover effect on the economic growth of the city. Among
the control variables, labor input, fixed capital investment and
government expenditure all significantly promote the economic
growth of the City, while the effects of science and technology
and human capital are not significant. The effect of FDI is
significantly negative. The labor input and science and technology
input in other cities have no significant impact on the economic
growth of the city, which may be due to the low efficiency of
government science expenditure partly. The fixed asset investment
and government expenditure of other cities have negative spatial
spillover effect on the city’s economy, which reflects the strong
resource competitiveness in the process of economic development
of cities in the Yangtze River Delta. However, it is worth noting
that human capital investment in other cities has a positive and
significant spatial spillover effect on the economic growth of the
city, which also reflects the strong mobility of high-end talents in
the Yangtze River Delta.
Under the nesting matrix of economic geography, the time lag
coefficient of economic growth remains stable, but the spatial
lag coefficient becomes insignificant, which shows that when
considering the nesting relationship of economic geography,
the spatial spillover effect of other cities on local city is not
significant. The regression coefficient of TL remains stable,
significantly negative, and the coefficient of TL spatial lag term
is not significant at the level of 5%. Therefore, the improvement
of the rationalization level of industrial structure in this city is
conducive to promoting economic growth, while the spatial
spillover effect of the rationalization level of industrial structure
in other cities is not significant. The regression coefficient of
TS remains stable, and the correlation of TS spatial spillover is
significantly negative, and the absolute value becomes larger,
which shows that the upgrading of industrial structure in this city
or other cities is both not conducive to promoting the economic
growth, and the negative spatial spillover effect of the upgrading
of industrial structure increases after comprehensive consideration
of economic and geographical factors. The regression coefficient
of each control variable remains stable, basically consistent with
the regression coefficient under the economic distance weight
matrix. There is a significant difference between technology
investment and foreign direct investment, and the regression
coefficient is significantly negative.
Different from the dynamic model, the static model does
not consider the time lag and time-space lag of dependent
variables. Under the weight matrix of economic distance, the
regression coefficient of spatial lag term of economic growth
is significantly positive, but the value is reduced. The absolute
value of TL regression coefficient increases, the absolute value
of TS regression coefficient decreases, and the absolute value of
TS spatial lag term slightly increases. On the one hand, it shows
that our regression results are stable. On the other hand, compared
with the dynamic model, the static model underestimates the
spatial spillover effect of economic growth and the impact of
industrial structure upgrading on economic growth, overestimates
the economic driving effect of industrial structure rationalization,
and overestimates the spatial spillover effect of industrial
structure upgrading. Under the nested spatial matrix of economic
geography, the corresponding conclusion is similar.
Due to the strong explanatory power of dynamic SDM model,
this paper further decomposes the effect of dynamic SDM model.
Decomposition of Direct Effects and Indirect Effects
The decomposition results of each independent variable effect
are shown in Table 3. Under the spatial weight matrix of economic
distance, the long-term and short-term direct effect parameter

Table 3. Direct effect and indirect effect decomposition of dynamic SDM model.

Weight
Effects TL TS lnl lni lngov tec edu fdi
Matrix
SR_Direct -0.273*** -0.091*** 0.039** 0.207*** 0.043*** 0.204 0.290 -4.450***
SR_Indirect 0.081 -0.385*** 0.053 -0.031 -0.602* -0.523 1.365** -0.265
W_E
LR_Direct -0.305*** -0.108*** 0.044** 0.232*** 0.048*** 0.220 0.345* -4.987***
LR_Indirect 0.067 -0.482*** 0.070 -0.014 -0.069* -0.615 1.706** -0.854**
SR_Direct -0.286*** -0.065** 0.042** 0.225*** 0.049*** 0.521 0.299* -4.455***
SR_Indirect -0.562** -0.637*** 0.082 0.053 -0.004 -4.884*** 3.363*** -5.026***
W_GE
LR_Direct -0.319*** -0.067* 0.047** 0.255*** 0.056*** 0.643 0.303 -5.001***
LR_Indirect -0.720*** -0.595*** 0.106* 0.236*** 0.038 -3.698*** 3.103*** -8.034***

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 Spatial Panel Model of Economic Growth Effect of Industrial Structure Changes 381

estimates of TL are significantly negative, and the absolute value
of the long-term direct effect parameter estimates is slightly larger,
which shows that whether in the short term or in the long term,
the improvement of the rationalization level of industrial structure
is conducive to promoting the economic growth of the city, and
the long-term driving force is stronger. The parameter estimates
of TL long-term indirect effect and short-term indirect effect are
not significant, which shows that the rationalization of industrial
structure has no significant impact on the economic growth of
other spatial adjacent cities. In the economic geography nested
matrix, the estimated values of long-term direct effect and short-
term direct effect parameters are consistent with the estimated
results in the economic distance weight matrix, but the estimated
values of long-term indirect effect and short-term indirect effect
parameters are significantly negative, and the absolute values are
significantly negative greater than the direct effect. This means
that after considering the relationship between economy and
geography, the improvement of rationalization level of industrial
structure will not only promote the economic growth of local
city, but also show a strong positive spatial spillover effect on the
economic growth of other spatial neighboring cities.
Under the economic distance weight matrix and the economic
geography nesting matrix, the effects of industrial structure
upgrading are basically the same. As a whole, the absolute value
of the estimated indirect effect parameter is greater than the direct
effect. It shows that the upgrading of industrial structure has a
stronger economic hindrance to other spatial neighboring cities
than to local city.
Among the control variables, the effect of labor input, capital
input and government financial expenditure on economic growth
is consistent in the estimation results of each spatial weight matrix.
The long-term effect is slightly higher than the short-term effect,
and the significance of the indirect effect is lower than the direct
effect, which shows that the input of each factor mainly promotes
the economic growth of local city. Under the nesting matrix of
economic geography, the parameter estimates of the long-term
indirect effect of labor and capital investment are significantly
positive, which shows that labor and capital investment have
positive spatial spillover benefits for spatial neighboring cities in
the long term. All kinds of effects of human capital investment
in different spatial weight matrix are significantly positive, and
the estimated value of indirect effect parameter is greater than
the direct effect. It shows that the input of human capital not
only promotes the economic growth of the city, but also has a
stronger spatial spillover effect on the economic growth of the
spatial neighboring cities, especially after considering the dual

Table 4. Robustness test results.

W_G
Variables
Fixed Effect Static SAR Fixed Effect Dynamic SAR Random Effect SEM Fixed Effect Static SDM Fixed Effect Dynamic SDM
TL -0.303*** -0.236*** -0.378*** -0.368*** -0.305***
TS -0.219*** -0.203*** -0.157*** -0.102*** -0.101***
lnl 0.013 0.019 0.036* 0.047*** 0.046***
lni 0.132*** 0.111*** 0.187*** 0.255*** 0.215***
lngov 0.057*** 0.050*** 0.041*** 0.047*** 0.037***
tec 0.190 0.247 -0.265 0.080 0.227
edu 0.568*** 0.424** 0.416** 0.473** 0.259
fdi -4.271*** -4.467*** -4.229*** -4.221*** -4.407***
lngdp(-1) 0.128*** 0.101***
W*lngdp 0.005 0.077 0.339** 0.474***
W*lngdp(-1) -0.133* -0.004

0.919***
W* ε jt
W*TL(-1) 0.380* 0.230
W*TS(-1) -0.366*** -0.244*
W*lnl -0.017 -0.030
W*lni -0.222*** -0.198***
W*lngov -0.017 -0.027
W*ec -0.281 -0.091
W*edu 0.778 0.753
W*fdi 1.285 2.083**
AIC -1072.46 -1122.65 -762.61 -1127.01 -1159.40
BIC -1028.93 -10711.30 -710.38 -1048.66 -1073.83
log-lik 572.2556 572.2556 598.6545 598.6545 598.6545
R2 0.8340 0.8623 0.8206 0.8519 0.8733
N 574 533 574 574 533

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382 Shi
proximity of economic geography, this spatial spillover effect
is more significant. The government expenditure on science
and foreign direct investment shows a stronger negative spatial
spillover effect under the nesting matrix of economic geography.
Robustness Test
In order to further test the robustness of the results, this paper
reports the regression results of SAR, SEM and SDM models
under the geospatial weight matrix W_G, as shown in Table 4.
The regression results confirm the robustness of the conclusions
in this paper.
CONCLUSIONS
The empirical analysis in this paper draws the following
conclusions. First of all, whether in the long term or in the short
term, the improvement of the rationalization level of industrial
structure is not only conducive to promoting the economic
growth of local city, but also has a positive spillover effect on the
economic growth of other spatial adjacent cities. The upgrading
of industrial structure is not conducive to the economic growth
of local city, and it also shows a negative spillover effect on the
economic growth of other spatial adjacent cities. In the long run,
this kind of negative effect is more important. Secondly, whether in
the long-term or short-term, labor input, capital input, government
financial expenditure, and human capital input are conducive to
promoting the economic growth of local city, and have a positive
spillover effect on the economic growth of adjacent cities. Among
them, the indirect effect of human capital investment is higher
than the direct effect in significance and value. Thirdly, the
economic growth effect of government expenditure on science
and technology is not significant, while foreign direct investment
shows a strong regression effect. Finally, the economic growth of
each city in the Yangtze River Delta shows a strong inertia, and
the economic growth of one city has a positive spillover effect on
the economic growth of other spatial adjacent cities.
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