Fiscal Decentralization, Regional Innovation and Industrial Structure Distortions in China

Abstract

The current industrial structure in China must be adjusted to create a new development pattern and promote high-quality economic development. Based on theoretical analysis and provincial panel data from 2008 to 2018, we empirically analyzed the impact of fiscal decentralization and regional innovation on industrial structure distortion. The results showed that fiscal decentralization has hindered the evolution of the industrial structure in the desired direction but has promoted regional innovation and thus effectively alleviated the distortion of the industrial structure. Regional investigation showed regional differences between the effect of fiscal decentralization on industrial structure distortion and the mediating effect of regional innovation. In the eastern and central regions, fiscal decentralization was not conducive to improving the degree of industrial structure distortion. Still, it could reduce the degree of industrial structure distortion by enhancing the indirect effect of regional innovation, whereas this indirect effect was not significant in the western region. We provide some policy suggestions to promote the coordinated development of the industrial structure.