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<p>By constructing a comprehensive database containing firm-level and meteorological-level information, this study examines how air pollution affects firm innovation. Using an instrumental variable approach, we find that air pollution significantly negatively impacts firm innovation. For every increase of 1&#xa0;µg/m<sup>3</sup> in the PM<sub>2.5</sub> concentration, the number of patent applications will be significantly reduced by 0.72%. In addition, the concentration of PM<sub>2.5</sub> is detrimental to the quality of patents. We also find that the negative effect of air pollution on firm innovation is more pronounced for private firms and capital-intensive firms. Mechanistic tests show that air pollution hinders the accumulation of innovative workers and increases production costs. Our findings indicate that firms’ behavioral responses should be accounted for when assessing how air pollution affects social welfare.</p>

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Pollution and innovation: Evidence from manufacturing firms in China

  • 期刊论文

  • 发表日期：

    2025年12月23日

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  • Hongxia Cui,
  • Long Pu

摘要

By constructing a comprehensive database containing firm-level and meteorological-level information, this study examines how air pollution affects firm innovation. Using an instrumental variable approach, we find that air pollution significantly negatively impacts firm innovation. For every increase of 1 µg/m3 in the PM2.5 concentration, the number of patent applications will be significantly reduced by 0.72%. In addition, the concentration of PM2.5 is detrimental to the quality of patents. We also find that the negative effect of air pollution on firm innovation is more pronounced for private firms and capital-intensive firms. Mechanistic tests show that air pollution hinders the accumulation of innovative workers and increases production costs. Our findings indicate that firms’ behavioral responses should be accounted for when assessing how air pollution affects social welfare.