Abstract: The digital economy, as an important engine for building a modernised industrial system, provides the core driving force for empowering industrial transformation and upgrading.Different from previous studies that examined the direct impact of the digital economy on industrial transformation and upgrading from a macro perspective, based on further expanding and perfecting the measurement framework of industrial transformation and upgrading and the level of digital economy development, the study empirically examined the direct and indirect mechanisms and spatial spillover effects of the digital economy on industrial transformation and upgrading from the micro perspective of the allocation of innovation factors. The study finds that: the development of digital economy has a significant direct effect on industrial transformation and upgrading; the digital economy positively promotes industrial structure advanced and greening through the optimisation of the allocation of human and capital innovation factors, and negatively inhibits the rationalisation of industrial structure, and it relies more on the allocation of capital innovation factors to influence The impact of digital economy development on industrial transformation and upgrading has spatial spillover effects and regional heterogeneity.

Key words: digital economy, innovative element configuration, modern industrial system, spatial spillover effects