The environmental effect of technical change: A spatial model with city-level data in China

This paper studies the environmental effects of technical change using a spatial model with panel data from 284 prefecture-cities over 2004-2015 in China. We find that the effects of technical change vary across different dimensions of technical change and different pollution indicators. Furthermore, we also provide robust evidence for the existence of the spatial effects of technical change on environmental pollution across cities. First, indigenous technical change displays three patterns of effects on the four pollutants: a positive effect on wastewater, a negative effect on PM2.5 concentrations, and an inverted U-shaped relationship with SO2 and soot emissions. The spatial effect of indigenous technical change promotes cleaner industrial productions (fewer emissions of SO2, soot and wastewater) but higher PM2.5 concentrations. Second, technology transfers from foreign direct investment are associated with less pollution except for wastewater, and their spatial effects are unanimously negative on all pollutants. Finally, absorptive capacity can also promote cleaner industrial production, but its spatial effects can do otherwise. Accordingly, the government should take the spatial spillover effects of technical change into account when implementing specific policies, pin down specific pollutants to make full use of the pollution-reducing effects of technical change, and improve the absorptive capacity of domestic firms.