This paper studies the spatial externality of manufacturing agglomeration in 130 cities in the Yangtze River Economic Belt by using bivariate Moran index. Firstly, the urban economic development index and environmental pollution index are calculated. Taking manufacturing industry as the central variable, the spatial autocorrelation between manufacturing industry, urban economic development index and environmental pollution index is calculated by using bivariate Moran's I. The cities with economic and environmental externality in the Yangtze River Economic Belt are obtained. Secondly, in the review of the factors that affect the attributes of urban characteristics, this paper analyzes the generation mechanism of urban spatial externality through the factors of urban location, urban development positioning and planning, and urban scientific and technological innovation capability; finally, on the basis of identifying the specific types and performance of urban externality, this paper analyzes the urban policy system and resource information. In order to realize the spatial linkage effect of the Yangtze River Economic Belt, the application of the spatial externality of urban manufacturing industry is put forward from the aspects of industrial structure and ecological environment.