How does digital economy drive industrial structure upgrading: An empirical study based on 249 prefecture-level cities in China

China is in a critical period of economic restructuring and optimization, and the vigorous development of the digital economy plays a vital role in the transformation and upgrading of the industrial structure. Using the panel data of 249 prefecture-level cities from 2011 to 2018, this study empirically investigates the relationship and mechanism between digital economy and industrial structure upgrading. The results show that the digital economy significantly promotes the upgrading of the industrial structure, and this conclusion is still valid after robustness tests such as selecting historical data as instrumental variables. The analysis of the mechanism of action shows that the improvement of labor efficiency and the promotion of technology spillover are the important mechanisms of the digital economy to promote industrial structure upgrading. Finally, the study of regional differences shows that the eastern region has the most obvious promotion effect of digital economy development, the central region is the second, and the western region has the least impact. The research here promotes the understanding of the motivation of industrial structure upgrading and the effect, mechanism, and regional differences of the digital economy enabling the development of a modern industrial system.