How air pollution affects innovation value in China urban area?

Most studies focus on the short-term economic consequences of air pollution, rather than its long-term impacts on urban development, such like innovation. Although a few studies have analyzed its impact on one way of inventive output–patent counts, ignoring differences in patent quality would make the findings lack economic interpretation. Therefore, this study utilizes a patent renewal model with micro-foundation to estimate the patent value by city (industry) in China. With the help of thermal inversion as an exogenous source of air pollution, our IV estimation finds that a 1% increase in air pollution leads to 1.19% decrease in patent value. Pollution damage is greater at low-to-medium level and is salient in the manufacturing sector. We also explore some mechanisms at the intensive and extensive margins, including the decline in innovation capacity, the shift to low-quality inventions, and the reduction in innovative bodies. Furthermore, we also discuss in detail why the estimated elasticity is larger than other studies, which contributes to re-evaluate the huge cost of air pollution on the economy, especially in the developing countries.