Industrial integration and value creation: a three-sector production function approach

The extension of agricultural industry to manufacturing and service industry is the development direction of the rural industrial integration. Empirical evidence demonstrates that industrial chain extension and reinforcement significantly enhance value creation. This research examines how industrial integration influences the value-added processes of the industrial chain, focusing on agricultural industry transformation. We discuss the industrial integration and its impact on value creation using a combination of theoretical and empirical methods. We develop a three-sector production function by extending the classical two-sector function. Empirical analysis verified the consistency with the theoretical model from both Chinese data and international experiences. The results represent that the integration model, planting structure, and factor productivity have elastic effects on the industrial chain’s value creation. ①The agricultural industry exerts a significant spillover effect on the manufacturing industry, and the manufacturing industry, in turn, has a markedly substantial spillover effect on the service industry. ②Factors marginal productivity in the agricultural and manufacturing industries is higher than that of the service industry. ③The integration model, the planting structure, and the quality of input factors exert significant external impacts on the industrial chain’s value creation. ④There are structural contradictions and regional imbalances in industrial integration. These findings suggest that optimizing the structure of agricultural production, promoting manufacturing, and fostering technological progress can create industrial chain value and support high-quality industrial development.