Does PM2.5 (Pollutant) Reduce Firms’ Innovation Output?

Zhiqiao Xiong, Dandan Li () and Hongwei Yu
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Zhiqiao Xiong: School of Economics and Management, Changsha University of Science and Technology, Changsha 410076, China
Dandan Li: School of Low Carbon Economics, Hubei University of Economics, Wuhan 430205, China
Hongwei Yu: Institute of Quality Development Strategy, Wuhan University, Wuhan 430072, China

IJERPH, 2023, vol. 20, issue 2, 1-19

Abstract: The potentially serious economic consequences of China’s severe air pollution problem cannot be overlooked, especially the impact on corporate innovation, which is a core driver guiding firms towards efficient and high-quality development. This paper explores the direct effect and mechanism of PM2.5 on firms’ innovation output through the identification strategy of instrument variable. Based on the data of Listed Companies in China from 2003 to 2016, we used thermal inversion as the instrument variable for PM2.5 for estimation. The results show that each 1 ug/m 3 increase in PM2.5 concentration causes an average reduction in innovation output of listed companies by about 7.0%. The test of “Porter hypothesis” shows that environmental regulation has not encouraged firms to innovate more. We further used the 2013 China Social Survey (CSS) data to verify the human capital mechanism of PM2.5 affecting firm innovation at micro level. The results show that PM 2.5 deteriorates the healthy human capital in a firm, which reduces the innovation output. This article helps to understand the relationship between air pollution and firms’ innovation and to develop appropriate policies.

Keywords: PM2.5; innovation output; instrument variable; thermal inversions (search for similar items in EconPapers)
JEL-codes: I I1 I3 Q Q5 (search for similar items in EconPapers)
Date: 2023
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