Mechanism Analysis of Digital Economy on Industrial Structure Upgrading

China’s advancement in the economic realm has ushered in a fresh era, wherein the transformation and upgrading of its industrial structure stand as the sole pathway to attaining high-caliber economic progress. The digital economy has become the main driver to promote economic development and optimize the industrial structure. Utilizing data from 31 Chinese provinces spanning from 2011 to 2021, a dual fixed effects model has been established to investigate the impact of the digital economy on the evolution and enhancement of industry frameworks. This model accounts for both time-invariant unobserved heterogeneity at the provincial level and time-varying factors that could affect the relationship between the digital economy and industrial upgrading. A mediation effect model is employed to examine the process through which urbanization influences the advancement of industrial upgrading by utilizing intermediate mechanisms. The analysis reveals that the digital economy plays a beneficial role in shaping industrial sectors, with varying degrees of impact across regions. Specifically, the eastern part of the country experiences a more pronounced promotive effect from the digital economy, suggesting a stronger potential for this sector to drive structural improvements in the industrial landscape of the east compared to other regions. The model’s findings provide insights into how policymakers can leverage the digital economy to foster more efficient and competitive industrial sectors, which is essential for sustainable economic growth in China.