The impact of technological innovation on air pollution: Firm-level evidence from China

Technological innovation and environmental pollution are two contemporary issues in China. This paper analyses firm innovation's impact on air pollution using large, firm-level data sets from the Chinese industrial sector during the 1998-2012 period. The empirical results indicate that innovation significantly reduces firms' pollution discharges, and that the causal relationship still exists when propensity score matching, instrumental variables, and other approaches are used to address endogeneity. Further analysis indicates that innovation effects on firms' air pollution are heterogeneous across different industrial sectors, locations, and ownership types. The mechanism test reveals that decreasing energy consumption and misallocation of resources accounted for the observed pattern. This study's results hold important implications for reducing air pollution to improve environmental quality in China.