Abstract: Based on the technology diffusion model under monopolistic competition conditions, this study explores the impact of regional market segmentation on the productivity improvement of Chinese manufacturing enterprises. Considering the theoretical and empirical tests, the study finds an asymmetric relationship between regional market segmentation and manufacturing enterprises' productivity. In the short term, local market segmentation has a positive effect on the productivity of local manufacturing enterprises, while in the long term, the impact is insignificant. Foreign market segmentation is always detrimental to the productivity improvement of local manufacturing enterprises, and the market segmentation between regions is not conducive to the overall productivity improvement of manufacturing enterprises within the region. A series of robust tests support above conclusions. The analysis of impact mechanism shows that the market segmentation between regions mainly affects the market competition pattern and market demand scale of enterprises, changes the innovation rent for technology research, and thus affects the technological progress and total factor productivity of enterprises. The heterogeneity test shows that the market segmentation between regions has a stronger asymmetric impact on the productivity of manufacturing enterprises in state-owned, low export-dependent, western region, low-tech, and low finance-dependent industries. It also finds that the deregulation of foreign capital tends to strengthen the positive impact of local market segmentation on the productivity of local manufacturing enterprises, but fails to weaken the crowding-out effect of external market segmentation on the productivity of local manufacturing enterprises. Therefore, we should break down administrative barriers between regions through integration ideas and measures, and connect with domestic and foreign markets, which is conducive to strengthening enterprise innovation and promoting high-quality economic development.
