Unlocking a green and efficient economy: The role of resource reallocation

The dilemma between reducing carbon emissions and fostering economic development remains a central challenge in climate mitigation. To address this challenge, this study investigates whether improving resource allocation efficiency can serve as a viable pathway to achieve both goals. Drawing on the misallocation framework, we construct city-level efficiency indices for 286 Chinese cities from 1998 to 2013 using firm-level data. The empirical findings highlight improvement in resource allocation efficiency reduces carbon emissions while simultaneously promoting output. This effect varies across regions and industries, being most pronounced in more developed areas and in the manufacturing sector, influenced by disparities in economic, social, and sectoral characteristics. Encouraging industrial structural transformation and green technological innovation might be potential mechanisms. By demonstrating that correcting resource misallocation delivers co-benefits for productivity and decarbonization, our findings provide a new perspective on addressing the dilemma and offer valuable insights into crafting effective carbon reduction policies and sustainable, low-carbon development.