Mechanisms of How Private Equity Drives Industrial Upgrade: An Empirical Study Based on China’s Panel Data

Abstract

In recent years, the investment of private equity funds in China has increased and has become an important tool to promote industrial structure upgrades. Therefore, it is of theoretical and practical significance to study how and why industrial upgrades are driven by private equity funds. First, we use the understanding of heterogeneity to study the differences between the use of private equity funds and other financial instruments to stimulate industrial upgrades, and we represent industrial growth from two perspectives: economic aggregate growth and economic efficiency improvement. Next, we use shift-share analysis to disaggregate industrial upgrades into static and dynamic transfer effects, showing that other financial instruments only promote production factor mobility but not production efficiency, while private equity funds significantly contribute to both mobility and efficiency. Finally, the mediating effect model is used to study how private equity funds drive industrial upgrades: mainly from efficiency improvement based on technological progress and innovation output, and to a lesser extent from the promotion of factor mobility. The findings have practical value and implications for the optimization of financial reforms and the sustainability of regional economies.