How Air Pollution Makes Firms Less Innovative: Human Capital and Adaptive Strategies

Tiago Cavalcanti, Kamiar Mohaddes, Hongyu Nian and Haitao Yin

Cambridge Working Papers in Economics from Faculty of Economics, University of Cambridge

Abstract: This paper explores the long-term impact of air pollution on firm-level R&D human capital composition and innovation, as well as the strategies firms adopt to mitigate these effects. Using a spatial regression discontinuity design based on China's Huai River heating policy and exploring a novel dataset with detailed information on firm-level R&D sector, we show that prolonged exposure to air pollution significantly reduces the proportion of R&D workers with advanced degrees, such as PhDs and master's degrees. To counteract these challenges, firms in polluted areas increase their reliance on external strategies, such as acquiring technology and collaborating with universities, and adopt internal measures, including enhanced welfare subsidies for R&D staff and greater investment in experimental instruments. Despite these efforts, firms in polluted areas still produce lower R&D value compared to those in cleaner regions. Our results highlight the key importance of internal human capital in complementing external technological investments.

Keywords: adaptive strategies; air pollution; firm value; innovation; R&D human capital composition (search for similar items in EconPapers)
Date: 2024-11-06
New Economics Papers: this item is included in nep-cna, nep-cse, nep-ene, nep-env and nep-sbm
Note: tvdvc2, km418
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Working Paper: How Air Pollution Makes Firms Less Innovative: Human Capital and Adaptive Strategies (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:cam:camdae:2466

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