The Impact of Industrial Upgrading on Capacity Utilization: Evidence from China

Improving capacity utilization represents an important approach to optimizing enterprise operations. This paper regards the National Industrial Transformation and Upgrading Demonstration Zone (ITUDZ) policy as a quasi-natural experiment to examine how industrial upgrading policy affects enterprises’ capacity utilization (CU). Using a difference-in-differences (DID) model and data on Chinese listed manufacturing firms from 2010 to 2019, we find that the ITUDZ policy significantly improves enterprises’ capacity utilization. Heterogeneity analysis indicates that the policy exerts a more pronounced effect on capacity utilization in energy-intensive cities, energy-intensive enterprises, non-state-owned enterprises, and enterprises located in eastern and central China. Furthermore, the ITUDZ policy functions primarily by promoting firms’ technological progress and strengthening environmental regulation. This study provides policy implications and empirical evidence for advancing industrial upgrading and enhancing capacity utilization in China and other developing countries.