Footnote:
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments December 23, 2020 erstellt
Description:
We estimate air pollution’s causal effect on firm innovation based on a nationwide sample of Chinese manufacturing firms. Using thermal inversion as instrument, we show that air pollution significantly reduces innovation: the total loss in new product value for our sample firms amounts to 611.42 billion CNY due to the increase in average PM2.5 from 1998 to 2007. We also provide the casual estimate using regression discontinuity design by exploiting the exogenous variation in pollution level caused by China’s Huai River policy: the decrease in new product value is about 10% north of the Huai River Line. A further investigation of the underlying mechanisms reveals that poor air quality lowers labor productivity, decreases the probability of retaining skilled workers, and reduces R&D investments. Our findings suggest the cost of air pollution is larger than previously thought, as it impedes innovation, one of the main drivers of long-term economic growth