Is air pollution detrimental to regional innovation? Evidence from Chinese cities

Could the negative effect of air pollution be a threat to regional innovation and stunt economic growth in the most polluted Chinese cities? Considering that the generation of innovation can greatly rely on skilled workers and their productivity, this paper examines the association between air quality and regional innovation. An instrumental variable for air quality-the central heating policy-is used to address potential endogeneity problems. The results suggest a growing negative and significant impact of air pollution on city-level innovation. A corresponding mechanism analysis rules out the possibility that self-selection of skilled workers has accounted for the negative impact of air pollution on innovation and consequently infers that the productivity effects may have explained the negative impact.