Can public debt drive the development of advanced productive forces? Evidence from AI development

This study examines whether public debt expansion promotes or inhibits advanced productive forces' development using artificial intelligence (AI) development as a representative indicator. Using data from Chinese prefecture-level city investment bonds and A-share listed firms spanning 2013–2023, we investigate the impact of public debt expansion on firms' advanced technology development and the underlying mechanisms. Results reveal that public debt expansion significantly suppresses firms' investment in advanced technologies and the development of advanced productive forces. Mechanism analysis shows that this negative effect primarily operates through intensified financing constraints and crowding out research and development investment. Moreover, tax incentives and government subsidies effectively mitigate the adverse impact of public debt expansion on firms' advanced productive forces. Heterogeneity analysis reveals that the inhibitory effect is more pronounced for nonstate-owned enterprises (non-SOEs), firms with higher risk levels, and those with lower return on assets (ROA), whereas it is insignificant for SOEs, low-risk firms, and those with higher ROA. In addition, we demonstrate that public debt expansion significantly restrains advanced productive forces’ development for manufacturing firms, firms located in eastern China, and those in regions with lower levels of digital inclusive finance, while the effect is insignificant for nonmanufacturing sectors, noneastern regions, and regions with more developed digital inclusive finance.