The Middle Route of the South-to-North Water Diversion Project has alleviated water supply–demand imbalances in North China and generated notable economic, social, and ecological benefits. To address the potential bias of traditional difference-in-differences (DID) models that neglect spatial spillover effects, this study employs a spatial DID approach to examine the project’s impacts on both water-receiving areas and their neighboring regions. The results show that the project significantly promotes industrial structure rationalization and upgrading, built-up area expansion, and carbon productivity in water-receiving areas, while also producing positive spillover effects in non-receiving areas. However, only carbon productivity exhibits a spatial synergy effect among water-receiving areas, reflecting a “strong–strong cooperation” pattern. In addition, the spillover effects display a clear distance-decay pattern within approximately 200 km of the water-receiving areas. Extended analyses indicate that the project substantially promotes the development of secondary and tertiary industries while negatively affecting the primary industry in water-receiving areas, whereas all three sectors show positive spillover effects in non-receiving areas. Furthermore, enterprises play a mediating role in the spillover effects related to industrial structure upgrading and carbon productivity. These results remain robust under a series of related robustness checks. These findings suggest that policy design should strengthen cross-regional governance coordination, improve the alignment between industrial restructuring and water-use patterns, and enhance firms’ upgrading in water-saving and green technologies, thereby ensuring the full and sustainable realization of the project’s benefits.
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