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Does severe air pollution affect firm innovation: evidence from China

Author

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  • Li Wang
  • Fei Xing
  • Yishan Yu
  • Yunhao Dai

Abstract

This study investigates the influence of air pollution on firm innovation by using Chinese listed firms. Our results indicate that firms headquartered in a city with severe air pollution tend to engage less in innovation activities. To more explicitly identify causality, we establish a 2SLS where the air quality is instrumented by the local thermal inversions. This negative effect is primarily driven by brain drain channels, specifically the migration of highly skilled employees. In addition, such a negative effect is more pronounced for firms with low employee salaries and those belonging to competitive industries. The results are robust to a variety of model specifications and alternative measures.

Suggested Citation

  • Li Wang & Fei Xing & Yishan Yu & Yunhao Dai, 2021. "Does severe air pollution affect firm innovation: evidence from China," Applied Economics Letters, Taylor & Francis Journals, vol. 28(7), pages 551-558, April.
    • Handle: RePEc:taf:apeclt:v:28:y:2021:i:7:p:551-558
    DOI: 10.1080/13504851.2020.1764474
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    Cited by:

    1. Jiang, Dequan & Li, Weiping & Shen, Yongjian & Yu, Shuangli, 2022. "Does air pollution affect earnings management? Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 72(C).
    2. Zhao, Qian & Ding, Longfei & Pirtea, Marilen Gabriel & Vǎtavu, Sorana, 2023. "Does technological innovation bring better air quality?," Economic Analysis and Policy, Elsevier, vol. 80(C), pages 978-990.
    3. Hu, Shuya & Wang, Shengnian, 2024. "Does air pollution affect the accrual anomaly in the Chinese capital market? From the perspective of investment adjustment strategy," Research in International Business and Finance, Elsevier, vol. 69(C).
    4. Su Yi & Muhammad Rabnawaz & Waqar Jalal & Ali Zeb, 2023. "The Nexus between Foreign Competition and Buying Innovation: Evidence from China’s High-Technology Industry," Sustainability, MDPI, vol. 15(15), pages 1-27, July.
    5. Wang, Mingyue & Sun, Tianshi, 2023. "Leave for where? The impact of air quality on migration: Evidence at the city-pair level in China," Economics & Human Biology, Elsevier, vol. 51(C).
    6. David Karpa & Torben Klarl & Michael Rochlitz, 2021. "Artificial Intelligence, Surveillance, and Big Data," Papers 2111.00992, arXiv.org.
    7. Rui Zhao & Dawei Liang & Yukun Pan & Qianqian Du, 2022. "Air Pollution and Employee Protection: The Moderating Effect of Public Attention and Environmental Regulations," Sustainability, MDPI, vol. 14(18), pages 1-18, September.
    8. Yi Shen & Minghan Lyu & Jiali Zhu, 2022. "Air Pollution and Corporate Green Financial Constraints: Evidence from China’s Listed Companies," IJERPH, MDPI, vol. 19(22), pages 1-23, November.
    9. Grolleau, Gilles & Weber, Christoph, 2024. "The effect of inflation on CO2 emissions: An analysis over the period 1970–2020," Ecological Economics, Elsevier, vol. 217(C).
    10. Zhiwen Su & Mingyu Zhang & Jianjun Sun & Wenbing Wu, 2023. "Agribusiness diversification and technological innovation efficiency: A U‐shaped relationship," Agribusiness, John Wiley & Sons, Ltd., vol. 39(2), pages 322-346, March.
    11. Chiu, Ya-Ling & Luo, Jinbo & Boscaljon, Brian L., 2024. "The Mist of corporate innovation," International Review of Economics & Finance, Elsevier, vol. 93(PB), pages 602-624.
    12. Jiang, Dequan & Li, Weiping & Shen, Yongjian & Zhang, Ying, 2022. "Does air quality affect firms’ investment efficiency? Evidence from China," International Review of Economics & Finance, Elsevier, vol. 79(C), pages 1-17.
    13. Weiping Li & Xuezhi Zhang & Shuyi Cheng & Xiaohang Ren, 2024. "Clear the air via dividends: Corporates' response to air pollution," Business Strategy and the Environment, Wiley Blackwell, vol. 33(4), pages 3383-3396, May.

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