Research on the Impact and Mechanism of Modernized Industry-City Integration on the Size of the Local Market

Abstract

The enhancement of local market size is an important element of sustainable economic development. The core purpose of the article is to prove that the increase of local market size has the attribute of industrial and spatial coupling, and that the deep integration of modernized industry-city has a profound impact on the increase of local market size. Based on panel data from 30 provinces in China from 2007 to 2021, this article employs a two-way fixed effects model to empirically test the impact of the deep integration of modernized industrial systems and new urbanization on the local market size. Furthermore, it uses industrial agglomeration, industrial structure upgrading, and urban-rural income gap as mediating variables to explore the mechanism. The results indicate that the deep integration of modernized industrial systems and new urbanization has a significant promoting effect on the local market size, with regional heterogeneity. The mediating effect test shows that the impact of the deep integration of modernized industrial systems and new urbanization on the local market size mainly operates through industrial agglomeration, industrial structure upgrading, and urban-rural integration.

1. Introduction

China’s Central Economic Working Conference in 2023 referred to “the existence of blockages in the domestic general circulation”, the first time this expression has been used since the introduction of the national strategy of constructing a domestic general circulation as the mainstay and a dual domestic and international circulation. Domestic general circulation refers to the economic cycle model that takes the domestic market as the main body and realizes the dynamic balance of supply and demand and the sustainable development of the economy by promoting domestic demand, accelerating the transformation of the mode of economic growth, and giving full play to the decisive role of the market in the allocation of resources. The “blockage” stems from the weakening of core competitiveness over the past four decades, as the production cost advantage brought about by the integration of factor markets has been eroded along with the rising cost of China’s labor factors. In addition, China’s industries are also facing a high-end squeeze from developed countries, which has plunged modern industries into a “structural trap” of “neck-breaking” status [1]. Finding alternative variables for advantageous switching is an urgent task facing the current new development pattern of services. Shifting from a factor-driven to a market- and innovation-driven approach by enhancing the degree of integration of product markets and thus realizing economies of scale may be an important direction to crack this challenge.

For years, China’s growth has been characterized by a low level of scale expansion and an erosion of potential cross-regional division of labor and market integration, which Young describes as the price of Chinese-style growth [2]. Against this background, the State has proposed the construction of an economic pattern dominated by a domestic general cycle, which means exploring more efficient resource allocation, production methods, and consumption structures while maintaining good domestic demand and the domestic market environment and promoting the transformation of the economy towards high-quality development. Sustainable economic development in urban and rural areas is an important aspect of the domestic macro-cycle, with new urbanization connecting domestic demand and consumption at one end to promote the integrated development of the urban and rural markets and modernized production at the other end. The modernized industrial system, as the core of the modernized economic system, is an open and dynamic system with endogenous dynamics covering multiple fields, a full perspective, and a wide range of dimensions, and it is an important material and technological support for improving the resilience of economic growth. The deep integration and development of the two will inevitably have a positive impact on enhancing the size of the local market through optimizing the optimal allocation of resources between regions, industries, sectors, groups and urban and rural areas and realizing the organic combination and interactive development of industry and urbanization.

An important feature of a large economy is that it must be internally circular and provide a large domestic market and supply capacity to support and drive the external cycle [3]. The basic logic is that China has the advantage of a super-large market unmatched by other countries. Based on China’s huge market size, the development and expansion of the domestic market can help to improve the industrial structure and promote industrial upgrading and technological innovation, and these positive changes can be interpreted as the local market effect, which naturally brings about the enhancement of the size of the local market, which improves the international competitiveness of the domestic products and promotes the smooth functioning of the external This effect will naturally lead to an increase in the size of the local market, which will, in turn, improve the international competitiveness of local products and promote the smooth operation of the external cycle. However, how to break down the urban-rural divide and barriers, establish a modern industrial base, and realize a high-quality double cycle? This is a question that deserves in-depth consideration. However, this issue has not yet been studied by the academic community. The core purpose of the article is to prove that the increase of local market size has the attribute of industrial and spatial coupling, and that the deep integration of modernized industry-city has a profound impact on the increase of local market size. This paper tries to answer this question from the perspective of cultivating the scale of the local market by including modernized industry and new urbanization in the analysis. Based on the coupling and coordination of the modernized industrial system and new urbanization, it is undoubtedly of theoretical significance to empirically study the impact on the scale of the local market and explore its inner realization mechanism and path.

2. Theoretical Overview

Research on market size can be traced back to the classical period. In The Wealth of Nations, Adam Smith elaborated on the impact of market size on economic growth based on the division of labor within enterprises, i.e., the theory of the “market scope” hypothesis that has been dormant for many years. Young expanded the intra-enterprise division of labor to the inter-enterprise division of labor and pointed out that the division of labor and market size have a positive feedback loop mechanism that influences and promotes each other [4]. Murphy argues that economic development is a “big push” from a low-level equilibrium with traditional constant technology to a high-level equilibrium with modern incremental technology and that the size of the market plays a crucial role in this process [5]. On the basis of the previous theoretical research, subsequent scholars have conducted more in-depth research on the relationship between market size and economic growth, especially with the endogenous economic growth theory in the 1980s and 1990s [6] and innovations in new trade theories [7]. It enriches the theoretical foundations and empirical support for market size advantage, and it outlines the development of the theory of market size advantage.

With the rise of emerging powers such as China and the emergence of the great power effect, scholars have explored the factors influencing the market size of China’s economy and analyzed the mechanisms by which this occurs. For the research on the influencing factors of market size, both the urbanization and modernization industries are important research directions. First, based on the fact that inter-regional trade barriers and market segmentation are phenomena of insufficient coordination between governments under the decentralized system, this study shows that the integration of administrative areas is adopted in the urbanization process. For example, “withdrawing counties and setting up cities” and “withdrawing counties and setting up districts” adopted in the process of urbanization can promote the transient growth of the urban economy, as well as the scale of expansion and growth in the number of cities [8,9,10]. However, the implementation of the policy of withdrawing counties and setting up cities may also produce the negative competitive effect of intensifying the competition for resources [11]. Secondly, under the promotion of the new urbanization strategy, make full use of the “scale effect” and “quality effect” of domestic consumption to stimulate the enterprises to enhance the size of the local market [12]. Thirdly, the spatial effect brought by urbanization can improve the necessary production factor guarantee for industrial structure optimization through the agglomeration of factors such as labor and capital [13], and at the same time, knowledge spillover is beneficial to the diffusion of technology to realize the innovation drive [14,15], and all these factors together promote the enhancement of the size of the local market.

In the construction of the modernized industrial system, the increase in market size is implicit in the support and promotion of the real economy. Around the national “accelerate the construction of modernized industrial system supported by the real economy” major strategic plan [16], the theoretical field of related research volumes. In particular, catering to the characteristics of the era of the development of the digital economy, the modern industrial system is performing ecological reconstruction, such as the impact of the digital economy on the green transformation of the manufacturing industry [17], the rationalization of industrial structural adjustment [18], transformation and upgrading [19], as well as the driving role of industrial ecological transformation [20]. Its main goal is to rely on a variety of new business forms and technologies derived from the digital economy, transform the flow of talent, logistics, technology, and capital into data flow, and then embed into the real economy to realize value-added, forming an industrial ecological cluster with value co-creation as the connecting point, so as to realize the ubiquitous interconnection and in-depth synergies of the industrial chain of the entity, the value chain, the innovation chain, the capital chain, and the service chain, and to create common value [21]. On the other hand, new urbanization is not only about population but also about the development of the economy. On the other hand, new urbanization is not only a simple gathering of the population to the city but also a profound change covering various aspects of the economy, society, and ecology [22]. With the promotion of new urbanization, a large number of people flock to cities, forming a huge consumer market [23], which directly promotes the improvement of the market scale, which in turn strongly supports and promotes the development of the real economy, and then promotes the high-quality development of the economy [24]. It can be seen that new urbanization provides a broad development space and rich factor resources for the modern industrial system.

From the perspective of the integration of modern industrial systems and new urbanization, there is still room for expansion of previous studies. Firstly, although the research points out that new urbanization can form a huge consumer market to promote the development of the real economy, it has not deeply explored the driving mechanism of the integration of the modern industrial system and new urbanization. Second, the synergistic mechanism is imperfect: there is a lack of detailed analysis of the mechanism of synergistic development between the two. In terms of resource allocation, there is no study on how to accurately match resources to key aspects of the construction of modern industrial systems in the process of new urbanization. In terms of policy synergy, there is no discussion on how industrial policies and urbanization policies can cooperate with each other to avoid policy conflicts or gaps, which may affect the effect of integrated development. Again, there are differences in resource endowments, economic foundations, and development stages in different regions, but the study fails to reflect this. Comparative analysis of the integration situation in different regions, such as eastern, central and western regions, has not been carried out, which cannot provide a reference for regions to formulate locally adapted integration and development strategies. Moreover, research on the size of the local market is currently mostly focused on single or several multiple variables, and research on how the in-depth integration of the two affects market size is even rarer, and this paper’s relaxation of the impact of market size to the dimension of integrated conditions is a marginal addition.

3. Theoretical Analysis and Research Hypotheses

Modernized industry-urban integration based on the coupling and coordination of the modern industrial system and new urbanization refers to the organic combination and interactive development of industry and urbanization through the optimization of industrial layout and the coordination of urban and rural development in the process of economic development [25]. It indicates that the economic structure is developing in a more advanced, diversified, and innovative direction, and by combining advanced industries and technologies with urban development, it can promote the transformation and upgrading of the economy from traditional industries to modern industries. First of all, the process of new urbanization has led to a more balanced geographical distribution of industries, and the differences in consumption preferences and demands in different regions have been reflected, thus promoting the diversification of market demands. The construction of a modernized industrial system brings higher value-added and innovative products and services, which can satisfy the growing consumer demand and thus promote the expansion of market scale. Secondly, the construction of modernized industrial systems promotes industrial upgrading and technological progress and promotes the innovation and competitiveness of enterprises. The development of new urbanization attracts more investments and enterprises, increasing the intensity of market competition. The improvement of market competitiveness brought about by this coupled coordination further promotes the growth of market size. Again, the coupled coordination of the modern industrial system and new urbanization contributes to the optimal allocation of market resources. Through the improvement of the industrial chain and the promotion of urbanization, resources can be more reasonably allocated and utilized among regions and industries. This makes the utilization of resources more efficient and promotes the growth of market size. Accordingly, the research hypothesis is proposed.

H1. 

the modernization of industrial and urban integration will lead to the expansion of regional market size.

In the process of the deep integration of the modern industrial system and new urbanization, industrial agglomeration and population agglomeration interact and promote each other. This mutually promoting relationship has prompted the formation of a positive cycle of industrial and population agglomeration, which has given great impetus to the continuous expansion of the market scale. (1) The formation and development of the modern industrial system is often accompanied by the phenomenon of industrial agglomeration. Due to the existence of industrial agglomeration, enterprises and organizations can enjoy the benefits of economies of scale and technological spillover effects, which promote the improvement of production efficiency and the reduction of costs. This further promotes the expansion of market size. In addition, industrial agglomeration provides more opportunities for cooperation between enterprises and innovators, catering to the process of new urbanization, the agglomeration of labor, and the large-scale demand and supply in the labor market, which promotes the improvement of productivity and labor productivity, and thus expand the market size. (2) Under the coupling and coordination of modern industrial system and new urbanization, with the promotion of industrial agglomeration and population agglomeration, cities have become centers of technological innovation and high-value-added industries, leading industrial upgrading and transformation, and the rise of emerging industries, while the old industries have been transformed and upgraded. The rapid development of emerging industries provides more new growth points for the market, leading to the expansion of the market scale; at the same time, the renovation and upgrading of old industries also make them better adapt to the market demand, promoting the improvement of the market scale. (3) The in-depth integration of new urbanization and modernized industrial systems means that new urbanization built on the basis of modernized industries helps to break down information barriers, trade barriers, and administrative barriers and promotes the effective flow and balanced allocation of resource factors. As the income of rural residents has been at a relatively low level for a long time, there is much room for upgrading, so by promoting the transfer of employment of farmers, the wage income of rural residents will be upgraded to ensure the fairness of urban and rural incomes. With the deepening of urban-rural integration, the rural market and the urban market will become more and more closely linked, forming a larger market and a more dynamic economy. This will be conducive to the expansion of the market, increase sales and profits, and further promote the expansion of market size. Accordingly, the research hypothesis is proposed.

H2. 

modernized industry-city integration impacts market size expansion through industrial agglomeration, industrial structure upgrading, and urban-rural income disparity.

4. Research Design

4.1. Baseline Modeling

In order to study the impact of the deep integration of the modernized industrial system and new urbanization on the size of the cultivation market, the following benchmark model is constructed:

$$\ln M{S}_{it}={\alpha }_0+{\alpha }_{1}DC+{\beta }_i{\displaystyle \sum _{i=1}^5{X}_{it}}+{\delta }_i+{\eta }_t+{\epsilon }_{it}$$

where ln MS_it is the market size, DC_it is the degree of coupled coordination between the modernized industrial system and new urbanization, X_it is a series of control variables, δ_i is the provincial individual fixed effect, and η_t is the year fixed effect.

4.2. Variable Selection

4.2.1. Explained Variables

Local market size (MS) is the explanatory variable of this paper. As mentioned earlier, Smith revealed the importance of market size: the larger the market size, the larger the local purchasing power and, thus, the larger the market capacity. At the same time, the larger the market size, the more fine-tuned the division of labor, the higher the level of division of labor and the innovation ability of local firms, and the more competitive their competitiveness in the face of foreign competitors. Referring to the relevant literature, the cross-multiplier term of regional population density and per capita disposable income level is used to measure the local market size, i.e., the purchasing power of the local population per square kilometer of land.

4.2.2. Core Explanatory Variables

Modernized industry-urban integration is measured by the coupling coordination degree of modernized industry system indicators and new urbanization evaluation indicators (DCs). This is achieved by constructing the modernized industry and new urbanization evaluation indexes, measuring the index weights and calculating the index scores through the entropy weighting method, and bringing them into the coupling coordination degree model to calculate the final deep integration indexes. Among them, (1) a modernized industrial system is a comprehensive concept that covers a number of aspects, including industrial integration, innovation-driven, structural optimization and upgrading, as well as a state of development with multiple characteristics. From the perspective of industrial development, the modernized industrial system emphasizes the mutual integration and coordinated development of new industries, modern service industries, and modern agriculture, and the formation of new industrial forms and business models through resource sharing, technological complementation, and market synergy among different industries, so as to achieve the efficient allocation of resources and the overall upgrading of industries. The construction of indicators for the construction of a modernized industrial system, with reference to the relevant literature [26,27,28], according to the “Outline of the Fourteenth Five-Year Plan for the National Economic and Social Development of the People’s Republic of China and the Visionary Goals for 2035”, proposes to “build a modern industrial system with the synergistic development of the real economy, scientific and technological innovation, modern finance, human resources”. This paper, from the real economy development, science and technology independent innovation, modern financial services, and human resources development with four dimensions, selected 9 secondary indicators and 30 specific indicators using the entropy weight method to measure the weight of the relevant indicators. The construction of the evaluation index system of the modernization of the industry is shown in Appendix A. (2) New urbanization is a reflection and adjustment of the past urbanization path, and its theoretical connotation includes at least four aspects: human nature, synergy, inclusiveness, and sustainability, and realizes the transformation from structuralism to humanism, from “population urbanization” to “human urbanization”. New urbanization evaluation indicators comprehensively reference the literature practices [29]. The constructed evaluation index system of high-quality development of new urbanization is from six dimensions: population urbanization, spatial urbanization, economic urbanization, social urbanization, ecological urbanization, and cultural urbanization. A total of 23 specific indicators are selected, and the entropy method is used to measure the level of new urbanization. The specific indexes are shown in Appendix B. (3) It is worth mentioning that there is a close and mutually reinforcing relationship between the modernized industrial system and new urbanization, and they also share the characteristics of integration, innovation, and sustainability. The modernized industrial system attracts the population to gather in cities through its development, providing economic support for new urbanization, while new urbanization provides broad space and market for the modernized industrial system through urban renewal and infrastructure construction, optimizes resource allocation, and enhances industrial agglomeration effect and synergistic innovation ability. In order to reflect the degree of influence of interdependence and interactive development between the two, the integration and development of the two are quantified using the coupling coordination degree model, and the calculation formula is as follows:

$$\mathrm{C}={\left(M\times U\right)}^{{\displaystyle \frac{1}{2}}}/\left(M+U\right)$$

$$\mathrm{T}=\alpha \times M+\beta \times U$$

$$DC={\left(C\times T\right)}^{{\displaystyle \frac{1}{2}}}$$

where C represents the coupling degree of the modernized industrial system and new urbanization indicators; DC is the degree of coupling coordination; T is the comprehensive development index. Given that the modernized industrial system and new urbanization are equally important, the coefficient α = β = 1/2.

This paper takes industrial structure upgrading, industrial agglomeration, and urban-rural income gap as mediating variables to explore whether there is a mediating effect on market size expansion. (1) Industrial structure upgrading. For the industrial structure upgrading measure, the industrial structure hierarchy coefficient (HI) is used to measure the level of industrial structure upgrading with the formula as follows:

$$HI=1\times {\mathrm{y}}_1+2\times y_2+3\times y_3$$

Among them, y₁, y₂, and y₃ represent the proportion of the added value of the three industries to the total added value, and the larger the value of H indicates, the higher the level of upgrading of industrial structure.

(2) Industrial agglomeration. Referring to the location entropy method proposed by Haggett [30] to measure the level of industrial agglomeration, the formula is as follows:

$$I{A}_{it}={\displaystyle \frac{SE{R}_i/{\displaystyle \sum _{i=1}^{n}SE{R}_i}}{GD{P}_i/{\displaystyle \sum _{i=1}^{n}GD{P}_i}}}$$

The numerator is the proportion of the value added of service industry in province i to the total value added of service industry, which is used as the representative of industrial agglomeration to reflect the “service-oriented characteristics of economic structure” in the new period and the denominator is the proportion of GDP to the total GDP of province i. The size of IA_it value represents the level of industrial agglomeration. The size of IA_it value represents the level of industrial agglomeration.

(3) Urban-rural integration. The urban-rural income gap (GAP) is used as a reverse proxy variable. In this paper, we refer to existing studies [31] to measure the Terre index, which is used to characterize the urban-rural income gap. The calculation method is as follows:

$$GAP={\displaystyle \sum _{i=1}^2\left(\frac{p_{it}}{p}\right)}\ln \left({\displaystyle \frac{p_{it}}{p}}/{\displaystyle \frac{z_{it}}{z}}\right)$$

where 1 and 2 denote urban and rural, respectively. p is disposable income, and z is population.

4.2.3. Control Variables

Referring to the existing literature, government intervention (gov), fiscal decentralization (fisde), traditional infrastructure (infra), digital infrastructure (diginfra), and openness to the outside world (exp) are used as control variables. Among them, government intervention is measured by “regional government expenditure/regional GDP”, where the government has incentives to directly participate and intervene in local economic activities in the context of decentralization in China. Fiscal decentralization is measured by the share of local government budgeted per capita fiscal expenditure in the national budgeted per capita fiscal expenditure. China’s fiscal decentralization system strengthens the economic incentives of local governments, improves the quality of public goods, saves management costs, promotes division of labor and specialization, and facilitates the expansion of market size; however, it also exacerbates regional competition, resulting in market segmentation and duplication of construction [32]. In this paper, infrastructure includes both traditional infrastructure and digital economy infrastructure, in which traditional infrastructure is characterized by urban road area per capita; digital infrastructure is measured by the number of Internet users per 100 people. In the digital period, the digital infrastructure is conducive to broadening the access to market and technological information for enterprises, expanding the boundaries of corporate innovation [33,34], which can improve regional total factor productivity by alleviating resource mismatch, promoting industrial structure upgrading, accelerating technological progress, etc., and all of these factors will have an impact on the market size. The degree of openness to the outside world is measured using the foreign trade dependence measure, i.e., regional import and export volume/regional GDP.

4.3. Data Sources

The research sample of this paper is 30 provinces (including autonomous regions and municipalities directly under the Central Government) in China. Due to the availability of data, the panel data of Tibet, Hong Kong, Macao, and Taiwan are not included. The sample size for each variable is 450. The main reason for choosing 2007 as the starting year of the study is that in October 2007, the report of the 17th National Congress included new urbanization in the category of “New Five Harmonization”, marking that the construction of new towns has entered a new stage. The main reason for choosing 2007 as the starting year of the study is that in October 2007, the report of the 17th National Congress included new urbanization in the category of “New Five Harmonizations”, marking that the construction of new towns nationwide has entered a brand new stage. The data in this paper come from the National Statistical Yearbook, China Environmental Yearbook, China Urban and Rural Construction Statistical Yearbook, China Science and Technology Statistical Yearbook, China Urban Construction Statistical Yearbook, as well as provincial statistical yearbooks and official government websites. In order to eliminate the heteroskedasticity caused by the difference in scale between variables, the non-percentage variables were logarithmized.

4.4. Descriptive Statistics

In order to avoid multicollinearity, the Variance Inflation Factor (VIF) was selected for the test of multicollinearity, and the results showed that the VIF value of each variable was less than the critical value of 10, and the mean value of the VIF of all variables was 3.68, which indicated that there was no multicollinearity. The descriptive statistics of each variable are shown in

Table 1. Results of descriptive statistics.

Variable Symbol	Variable Meaning	Sample Size	Mean	Standard Deviation	Min Value	Max Value
lnMS	Market size (log)	450	6.045	1.585	2.065	10.047
DC	Degree of coordination	450	0.437	0.102	0.220	0.780
gov	Government intervention	450	0.379	0.189	0.124	1.102
fisde	Fiscal decentralization	450	0.033	0.016	0.007	0.085
lndiginfra	Digital infrastructure (log)	450	0.301	0.185	0.034	0.669
exp	External dependence (log)	450	0.289	0.328	0.016	1.472
lninfra	Infrastructure	450	1.528	0.472	0.096	2.410

.

5. Empirical Results

5.1. Model Regression Results

After the F-test and Hausman test, all of them chose the fixed effect model for regression. The determination of one-way or two-way fixed effects was also carried out, and it was finally determined that a two-way fixed effects model was selected.

Table 2. Regression results.

	(1)	(2)	(3)	(4)	(5)	(6)
	lnMS	lnMS	lnMS	lnMS	lnMS	lnMS
DC	1.835 ***	1.810 ***	1.912 ***	1.061 ***	1.061 ***	0.982 ***
	(10.76)	(10.19)	(10.68)	(5.07)	(5.06)	(4.71)
gov		−0.033	−0.004	−0.312 ***	−0.312 ***	−0.339 ***
		(−0.52)	(−0.06)	(−4.16)	(−4.15)	(−4.54)
lndiginfra			0.255 ***	0.329 ***	0.329 ***	0.320 ***
			(3.00)	(4.06)	(4.05)	(3.98)
fisde				8.459 ***	8.460 ***	8.312 ***
				(6.92)	(6.91)	(6.88)
exp					−0.000	−0.061 *
					(−0.01)	(−1.87)
lninfra						0.090 ***
						(3.36)
_cons	5.244 ***	5.267 ***	5.135 ***	5.319 ***	5.319 ***	5.253 ***
	(70.30)	(60.28)	(52.85)	(55.56)	(55.13)	(53.97)
N	450	450	450	450	450	450
R2	0.999	0.999	0.999	0.999	0.999	0.999

Note: t-statistics within (), ***, **, and * indicate significance at the 1%, 5%, and 10% levels, respectively.

reports the regression results of the benchmark model. As shown in the table, column (1) has no control variables added, and columns (2)–(6) are the regression results with control variables (government intervention, digital infrastructure, fiscal decentralization, openness to the outside world, and traditional infrastructure) added sequentially. As can be seen from the results, the regression coefficient of the coupling coordination degree of the modernized industrial system and new urbanization is significantly positive, indicating that the coordinated development can enhance the regional market scale as a whole; after adding control variables, the regression coefficient gradually becomes smaller but still significantly positive, indicating that the coupling coordination degree plays a positive role in promoting the expansion of the regional scale, and Hypothesis 1 can be verified.

5.2. Endogeneity Test

As can be seen through the previous analysis, the measurement of the explanatory variables in the model setting of this paper exists in advance compared with the explanatory variables, which alleviates the impact of the endogeneity problem caused by reverse causality to a certain extent in order to better ensure the reliability of the research conclusions. Specifically, this paper further uses the instrumental variable method for estimation. The lag one and lag two of the core explanatory variables are used as instrumental variables, and the 2SLS regression is carried out after considering the coupling coordination lag one in the model. The instrumental variables are tested to be strong instrumental variables and are not unidentifiable. After considering the endogeneity issue, the results are shown in

Table 3. Results of endogeneity test.

	(1)	(2)	(3)	(4)
	Model 1	Model 2	Model 3	Model 4
DC	6.866 ***	3.926 ***	6.759 ***	3.842 ***
	(80.23)	(19.63)	(73.13)	(17.72)
gov		0.834 ***		0.921 ***
		(11.18)		(10.38)
lndiginfra		0.665 ***		0.668 ***
		(9.68)		(9.62)
fisde		−4.649 ***		−4.989 ***
		(−3.14)		(−3.20)
exp		−0.079 *		−0.017
		(−1.74)		(−0.38)
lninfra		0.142 ***		0.141 ***
		(4.11)		(4.19)
L.DC	0.993 ***	0.941 ***
	(176.91)	(50.15)
L2.DC			0.975 ***	0.855 ***
			(108.58)	(31.16)
N	420	420	390	390
R2	0.943	0.976	0.937	0.975

Note: t-statistics within (), ***, **, and * indicate significance at the 1%, 5%, and 10% levels, respectively.

, which supports the conclusion of market size promotion with or without the addition of control variables.

5.3. Robustness Tests

The robustness test is conducted in five aspects: First, replace the core explanatory variables. Using the consumption growth rate to measure the size of the local market and the coupling coordination degree of modern industrial systems and new urbanization still has a significant impact on the new size level. Second, add control variables. On the basis of the original control variables, the investment scale control variable is added, in which the regression results are also in line with the theoretical expectations, and the results are almost the same. Third, consider the policy node shocks. In 2014, the State Council issued the National New Urbanization Plan (2014–2020), which marks a new stage of urbanization development, and this paper intercepts the 2014–2020 time span for regression estimation. Fourth, the sample of municipalities is excluded. The four municipalities of Beijing, Tianjin, Shanghai, and Chongqing are dominant in terms of economic development level, technological level, or preferential policy inclination, which may bias the results and are therefore excluded. From the results, it can be seen that the regression coefficients of the coupling degree of coordination do not change much in terms of sign direction and significance, except for some differences in the size of the regression coefficients by replacing the explanatory variables, control variables, considering the policy nodes, or eliminating the sample of the municipalities. The signs of the coefficients of the control variables are basically the same as those of the baseline model, which indicates that the estimation results of this paper have relatively good robustness. The above results are not reported here due to space constraints.

6. Mechanism of Action

Through the previous analysis, it can be seen that the coupling and coordination of a modernized industrial system and new urbanization may have a positive impact on the expansion of local market size through industrial agglomeration, industrial structure upgrading, and urban-rural integration on the market of these intermediary variables. The intermediary effect is traditionally regressed using the “three-step method”, but this has been controversial in the academic community. According to Jiang Boat’s [35] “two-step method” for the mediation effect test, i.e., to propose one or several mediating variables that can reflect the role of the explanatory variables on the explanatory variables, the mediating variables should have a direct and obvious influence on Y. The effect of the mediator variable on Y should be direct and obvious, and only the causal relationship of the explanatory variable on the mediator variable needs to be identified. The first two steps of the mediating effects model are expressed as follows:

$$\ln M{S}_{it}={\alpha }_0+{\alpha }_{1}DC+{\beta }_i{\displaystyle \sum _{i=1}^5{X}_{it}}+{\delta }_i+{\eta }_t+{\epsilon }_{it}$$

$${\mathrm{M}}_{\mathrm{it}}={\gamma }_0+{\gamma }_1\mathrm{DC}+{\gamma }_2{\displaystyle \sum _{i=1}^5{X}_{\mathrm{it}}}+{\delta }_{\mathrm{i}}+{\eta }_t+{\epsilon }_{it}$$

Among them, M_it is the mediating variable, and this paper indicates the three variables of industrial structural upgrading, industrial agglomeration, and urban-rural integration.

The regression results are shown in

Table 4. Regression results of mechanism of action tests.

	(1)	(2)	(3)	(4)
	lnMS	HI	IA	gap
DC	0.982 ***	0.201 **	0.475 **	−0.285 **
	(4.71)	(2.01)	(2.32)	(−2.33)
Control variable	yes	yes	yes	yes
Constant term	4.596 ***	2.284 ***	1.000 ***	0.598 ***
	(69.31)	(71.90)	(15.36)	(15.36)
Individual fixed effect	yes	yes	yes	yes
Time fixed effects	yes	yes	yes	yes
N	450	450	450	450
R2	0.989	0.851	0.123	0.837

Note: t-statistics within (), ***, **, and * indicate significance at the 1%, 5%, and 10% levels, respectively.

. The regression coefficients of the coupling coordination degree are all significantly positive. Market scale enhancement can be realized through the mediating variables of industrial structure upgrading, industrial agglomeration and urban-rural integration, and Hypothesis 2 holds.

7. Further Analysis: Regional Heterogeneity

In order to analyze whether the coupled coordination degree of the modernized industrial system and new urbanization has a differentiated impact on the market potential enhancement of different regions, this paper divides the 30 provinces according to the eastern, central, western, and northeastern regions, and still adopts the fixed effect model to conduct the regression. The results are shown in

Table 5. Regression results based on geographic location.

	(1)	(2)	(3)	(4)
	Eastern region	Central region	Western region	Northeastern region
DC	0.423 **	0.859 ***	0.545 ***	−0.230
	(2.22)	(4.70)	(3.21)	(−1.06)
Control variable	yes	yes	yes	yes
Constant term	6.245 ***	5.003 ***	3.467 ***	4.979 ***
	(70.31)	(41.52)	(30.98)	(32.94)
N	150	90	165	45
R2	0.998	0.999	0.997	0.999

Note: t-statistics within (), ***, **, and * indicate significance at the 1%, 5%, and 10% levels, respectively.

.

As shown in Table 5, for the Northeast region, the regression coefficient of the coordination coupling degree is negative and insignificant, indicating that the coupling coordination degree fails to effectively promote the enhancement of market potential in the Northeast region; the Northeast region is China’s industrial-heavy land, facing more severe challenges of traditional industries to modernized industry transformation. The construction of new townships relying on the industrial foundation lags behind that of the other provinces, and the coupling of the modernized industrial system and the new townships is not yet a significant contribution to the enhancement of market potential in the Northeast region. The coupling of a modernized industrial system and new urbanization has not yet contributed significantly to the improvement of market potential in the Northeast. The traditional view is that the eastern part of China is usually considered to have greater market potential because it is relatively more developed in terms of economic development, scientific and technological innovation, financial services, and foreign trade, as well as having a high population density and strong consumption capacity [36], but in terms of the influence of the coupling degree of coordination, the coupling degree of coordination has the greatest contribution to the market potential of the central region. The regression coefficients in columns (1)–(3) of the table are significantly positive for the eastern, central, and western regions, but the regression coefficients in column (2) for the western region are larger than those in the western and eastern regions, and in column (3) for the western region are larger than those in the eastern region. The reason may be due to the fact that the central region plays an important role in China’s regional economy, connecting the east and the west, and has high development potential and growth space. By coupling the degree of coordination, the industrial structure of the central region can be optimized and upgraded, the urbanization process can be accelerated, and the level of infrastructure can be upgraded, which will help to enhance the vitality and attractiveness of the central region’s economy, and thus increase the market potential. As the eastern region is already relatively developed, the market potential has been relatively fully released and utilized; although the western region benefits from the resource advantages, the relatively underdeveloped infrastructure and industrial layout make the impact relatively small. However, it is foreseeable that the western region may receive more policy support and financial investment through the coupling coordination degree, for example, to strengthen the infrastructure construction of transportation, energy, communication, etc., to enhance the overall market potential and development vitality.

8. Conclusions and Policy Recommendations

Based on provincial panel data from 2007–2021, this paper empirically examines the impact of the deep integration of a modernized industrial system and new urbanization on the size of the local market and draws the following conclusions: First, based on the construction of indicators of the modernized industrial system and new urbanization, the deep integration of industry and city exhibits a significant positive contribution to the size of the local market, as portrayed by the use of the degree of coupling coordination, and the conclusions remain valid after a series of robustness tests. Thus, the conclusion still holds. Second, the deep integration of modernized industrial systems and new urbanization positively affects the expansion of local market size through the mediating variables of industrial agglomeration, industrial structure upgrading and urban-rural integration. Third, the deep integration of a modernized industrial system and new urbanization has regional heterogeneity in the promotion of local market size, which is manifested in the significant promotion of local market size in the eastern, central, and western regions, but the promotion effect is greater in the central and western regions, while the northeast region fails to show a significant promotion effect. This indicates that the market segmentation between the three northeastern provinces and the whole country, the geographic neighboring regions and the three northeastern provinces are more serious, and at the same time, there is a lack of leading growth poles, which is not conducive to the in-depth integration of the modernized industrial system and the new type of urbanization in this spatial pattern.

Based on the above conclusions, this paper puts forward the following policy recommendations: First, to help the “double-cycle” development pattern and to open up the “blockage” of the new development pattern, it is crucial to realize industrial synergy in space, i.e., the in-depth integration of the modernized industrial system and the new urbanization. Relying on cross-regional division of labor and market integration, we will promote organic coordination among industrial economy, scientific and technological innovation, modern finance, and human resources, and then promote the expansion of the local market scale to achieve positive interaction with the domestic macro-cycle. Secondly, break the geographical and economic boundaries between urban and rural areas, take the construction of parks and demonstration zones as a breakthrough through the establishment of national strategic emerging industry demonstration zones, industrial parks and other initiatives, supporting productive service industries, vertically extending the advantageous industries, fostering and deriving new industries on the basis of the basic capacity of the industries, promoting the in-depth fusion of the modernized industrial system and urbanization, and facilitating the synergistic and complementary development of the economy among different regions. Third, vigorously promote the deep integration of the modernized industrial system and new urbanization in the Northeast. The empirical results of the mediating effect of industrial structure upgrading in the previous section indicate that the Northeast can realize the transformation and upgrading of traditional industries by accelerating digital economic empowerment. In addition, we will actively build a national central city, promote industrial synergy and agglomeration through leading growth poles, and construct a domestic and international “double-circle” economic circle in the Northeast region. Fourthly, it will actively build a modernized agricultural and industrial system, improve the docking mechanism between the rural industrial system and modern service industry, strengthen industrial cooperation and docking between cities and villages, and promote the extension of the modern service industry to rural areas to provide more employment opportunities and business services, and to meet the different levels of consumption needs of farmers. At the same time, it promotes exchanges and cooperation between urban and rural areas, strengthens exchanges of talents, technology, information and other resources, and bridges the urban-rural divide to realize integrated urban-rural development on the basis of promoting mutual benefits and win-win situations in urban and rural areas.