Abstract: Digital finance has become the core way to solve the dilemma of financial exclusion, and is an important starting point to boost the transformation and upgrading of the service industry. Existing literature has conducted rich studies on the economic effect of digital finance development, but little attention has been paid to its impact on the transformation and upgrading of the service industry, and there is a lack of in-depth analysis from the perspective of spatial spillover effect. This paper selects the panel data of prefecture-level cities in China, constructs the panel Spatial Durbin Model, empirically tests the local effect and spatial spillover effect of digital finance development on the transformation and upgrading of the service industry, so measures the geographical attenuation boundary of spatial spillover effect. The results show that digital finance development has significant positive local and spatial spillover effects on the transformation and upgrading of the service industry, which not only contributes to the transformation and upgrading of the service industry in the region, but also effectively drives the transformation and upgrading of the service industry in neighboring cities. The robustness test results after replacing the spatial model, replacing the spatial matrix and changing the research samples confirm the robustness of the above conclusions. The spatial spillover effect of digital finance development on the transformation and upgrading of the service industry decreases with the increase of geographical distance, and when the geographical distance between cities exceeds 260 kilometers, the spatial spillover effect will no longer be significant.

Key words: the transformation and upgrading of service industry, digital finance development, spatial spillover effect, attenuation boundary