Abstract: As an important engine of China's economic development, the continuous expansion of the size of government debt in the Yangtze River Delta region has had a significant impact on regional economic growth. This study adopts panel data of 41 prefecture-level cities in the Yangtze River Delta region from 2007 to 2023, and applies a two-way fixed effect model to analyze the growth effect of the government debt on the regional economy. It is found that local government debt has a significant positive impact on the regional innovation level and the overall upgrading of industrial structure. The local government debt affects the growth effect of the regional economy by influencing the market size and urban economic density. The growth effect of broad-based debt ratio on regional innovation level is significantly higher in central cities, explicit debt regions and population inflow areas than that in peripheral cities, implicit debt regions and population inflow areas. The growth effect of debt expansion on regional innovation shows an inverted U-shaped curve, while its effect on industrial upgrading shows a positive U-shaped curve. The findings provide empirical evidence and policy implications for local government debt management, regional innovation capacity improvement and industrial structure optimization.
