Can intellectual property demonstration cities influence the location choice of polluting enterprises? Evidence from China

Existing studies focus on intellectual property rights (IPR) protection and corporate investment behavior due to the economic theory of property rights, while the relationship between IPR protection and site selection behavior remains unclear. Understanding the relationship between IPR protection and the placement of polluting enterprises contributes to environmental protection in practice and expands the classical location theory in light of the growing severity of environmental problems. This study identifies the effect of China’s intellectual property rights demonstration city (IPRD) policies on the location choice of polluting enterprises (LCPE). We collect the number of new polluting enterprises in 269 Chinese cities from 2003 to 2013 to measure LCPE. Using the difference-in-differences method based on propensity score matching (PSM-DID), we investigate the main impact, heterogeneous influence, and channel influence of IPRD policies on LCPE. We find that IPRD policies have a substantial negative impact on polluting enterprises’ entry into cities, which withstands a series of robustness tests. Our heterogeneity analyses indicate that the impact of IPRD policies on LCPE is more pronounced in private enterprises, heavily polluted cities, and economically developed regions. Furthermore, we find that IPRD policies raise the entry barrier for polluting enterprises by promoting industrial upgrading and talent aggregation. The empirical evidence indicates that appropriate IPR protection discourages polluting enterprises from entering and protecting the environment. In general, by creatively connecting IPRD policies to polluting company behavior, we provide new evidence on the unintended effects of innovation policies on the location of polluting companies.