Abstract: Externality and the optimization of industrial structure are related to the structural reform of the supply side and the construction of modern economic system.Based on the data of equipment manufacturing industry in 30 provincial-level regions in China in the 2000-2015, this paper explores the impact of externalities on the structural optimization of China′s equipment manufacturing industry by using GMM estimation method. The results show that the positive effect of externality on the structure optimization of China′s equipment manufacturing industry is mainly reflected in the rationalization of industrial structure, and there is a significant heterogeneity in the impact of industrial structure upgrading, that is, MAR externalities, Jacobs externalities and Porter externalities have a positive effect on the upgrading of the rationalization level of China′s equipment manufacturing industry in the short run, but only the positive effects of MAR externalities have been extended for a long time; MAR externalities and Porter externalities have a significant inhibitory effect on the structural height of the equipment manufacturing industry in the short term, while the externality of Jacobs has a significant promotion effect; in the long run, the promotion effect of Jacobs externalities on the industrial structure upgrading is decreasing, and has gradually changed to a significant inhibitory effect, while the inhibition effect of Porter externality on the industrial structure will also decline, and will gradually change to a positive effect. Therefore, we should not only focus on the historical conditions, geographical location, factor inputs and policy benefits of the equipment manufacturing industry, but also pay attention to the contribution of external factors to the structural optimization of equipment manufacturing industry; we should vigorously promote the supply side structural reforms to promote sustained industry rationalization and level of manufacturing equipment, focus on innovation and accumulation of knowledge and technology, and promote exchanges and cooperation between the association and complementary industries, to overcome the negative effects of MAR external and external Jacobs on structural height of equipment manufacturing industry in the short term.

Key words: equipment manufacturing industry, supply-side reform, externalities, optimization of industrial structure