Does China's state-owned sector lead industrial transformation and upgrading?

This study investigates the impact of the state-owned sector on industrial transformation and upgrading as well as its mechanisms. Using provincial panel data for China from 2001 to 2019, we found that SOEs have a positive influence on value-enhancing upgrading, while the effects on resource-saving and environment-friendly upgrading are inverted U-shaped. These results indicate that innovation partially mediates the relationship between SOEs and the three types of industrial upgrading. Employing Data Envelopment Analysis (DEA), we also measured the Malmquist index of SOEs and non-SOEs in China and empirically tested the spillover effects of SOEs. The empirical results reveal a significant innovation spillover effect of SOEs. SOEs are able to promote industrial transformation and upgrading with strong and far-reaching spillovers. •This paper defines three types of industrial upgrading.•State-owned enterprises (SOEs) have a positive impact on value-enhancing upgrading.•Innovation partially mediates the relationship between SOEs and industrial upgrading.•Our results reveal a significant innovation spillover effect of SOEs.