Does severe air pollution affect firm innovation: evidence from China. Issue 7 (16th April 2021)

• Record Type: Journal Article
• Authors: Wang, Li; Xing, Fei; Yu, Yishan; Dai, Yunhao
• Is Part Of: Applied economics letters. Volume 28:Issue 7(2021)
• Page Start: 551
• Page End: 558
• Publication Date: 2021-04-16
• Subjects: Air pollution -- human capital -- firm innovation -- brain drain; G30 -- Q53 -- O31; Economics -- Periodicals; Economics, Mathematical -- Periodicals; 330
• DOI: 10.1080/13504851.2020.1764474
• Languages: English
• ISSNs: 1350-4851

Abstract

ABSTRACT: This study investigates the influence of air pollution on firm innovation by using Chinese listed firms. Our results indicate that firms headquartered in a city with severe air pollution tend to engage less in innovation activities. To more explicitly identify causality, we establish a 2SLS where the air quality is instrumented by the local thermal inversions. This negative effect is primarily driven by brain drain channels, specifically the migration of highly skilled employees. In addition, such a negative effect is more pronounced for firms with low employee salaries and those belonging to competitive industries. The results are robust to a variety of model specifications and alternative measures.