Abstract: In the context of machine replacement, the manufacturing enterprises as innovative entities need to concentrate high-quality resources and work together to achieve breakthroughs in the key technologies and the independent control of core equipment, consolidate market and competitive advantages, and accelerate the process of domestic substitution in the manufacturing industry. Based on the panel data of the manufacturing industry from 2011 to 2019 and incorporating product quality upgrading into the analysis framework of machine replacement and localization substitution in the manufacturing industry, this paper conducts an empirical research. The findings show that machine replacement is beneficial for accelerating the localization substitution process in the manufacturing industry. The quality upgrading of the efficiency enhancing products and the technology optimizing products are their main mechanisms of action. Moreover, the impact of machine replacement on domestic substitution in the manufacturing industry has industrial heterogeneity. The promotion effect of machine replacement is more prominent in labor-intensive and technology-intensive industries, but it is not affected by the heterogeneity of R&D personnel density in the industry. The above conclusion indicates that a reasonable response to the impact of machine replacement is the key to promoting the stable and positive localization substitution in the manufacturing industry. The precise measures for the key industries such as labor-intensive and technology-intensive industries will bring more effective promotion effects in localization substitution.

Key words: machine replacement, efficiency improvement, technology optimization, product quality upgrading, domestic substitution