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Industrial Integration, Manufacturing Upgrading, and Sustainable Development: Evidence from Dynamic Spatial Analysis in China

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  • Fei Dong

    (School of Economics and Finance, Xi’an Jiaotong University, Xi’an 710049, China
    School of Mathematics and Statistics, Xianyang Normal University, Xianyang 712000, China)

  • Peng Huo

    (School of Social Services and Development, Zhengzhou Normal University, Zhengzhou 450000, China)

  • Yingdong Li

    (School of Economics and Finance, Xi’an Jiaotong University, Xi’an 710049, China)

Abstract

Against the backdrop of digital transformation, industrial integration between modern services and advanced manufacturing has become an important driver of sustainable industrial development. Nevertheless, existing studies have mainly examined its direct effects, while paying insufficient attention to temporal path dependence, spatial spillovers, and the underlying transmission mechanisms. Using panel data for 29 Chinese provinces from 2005 to 2024, this study investigates how industrial integration affects manufacturing upgrading in China within a dynamic spatial econometric framework. To this end, a dynamic Spatial Durbin Model, spatial mediation analysis, and instrumental-variable estimation are employed. The empirical results indicate that industrial integration significantly promotes manufacturing upgrading. In the benchmark model, a 1% increase in the coupling-coordination index between modern services and advanced manufacturing is associated with an approximately 0.121% increase in the manufacturing upgrading index. Manufacturing upgrading also shows strong temporal persistence, as reflected by a lagged dependent variable coefficient of 0.878. The decomposition of spatial effects further reveals that industrial integration produces both local promotion effects and cross-regional spillovers, with a direct effect of 0.135 and an indirect effect of 0.156. In addition, mechanism analysis shows that innovation efficiency serves as an important transmission channel linking industrial integration to manufacturing upgrading. These findings imply that industrial integration can support sustainable development by improving resource allocation efficiency, strengthening innovation capacity, and promoting more coordinated regional industrial development. This study enriches the literature on industrial integration and manufacturing upgrading from a dynamic spatial perspective and provides policy-relevant evidence for the design of differentiated and sustainability-oriented industrial integration strategies.

Suggested Citation

  • Fei Dong & Peng Huo & Yingdong Li, 2026. "Industrial Integration, Manufacturing Upgrading, and Sustainable Development: Evidence from Dynamic Spatial Analysis in China," Sustainability, MDPI, vol. 18(10), pages 1-23, May.
    • Handle: RePEc:gam:jsusta:v:18:y:2026:i:10:p:4886-:d:1941857
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