Air pollution, health, migration, and innovation: evidence from urban China

This study reveals the causal relationship between air pollution and urban innovation, examines the short-, medium-, and long-term innovation effects of pollution, investigates the effects of pollution concentration, high pollution occurrence rate, and persistent high pollution accumulation on urban innovation, and explores the micro-mechanisms through which air pollution affects innovation. Using panel data for urban China, we find that air pollution negatively affects innovation in the short, medium, and long term, with the effect being stronger in the long term. Using patent applications as an example, estimates using thermal inversion as an instrumental variable show that a 1% increase in air pollution reduces urban innovation by 2.2% in the short term, whereas this effect is 4.4% and 12.3% for medium- and long-term pollution changes, expanding about 2 and 5.5 times, respectively. Meanwhile, the impact of pollution on innovation is heterogeneous across cities with different geographic locations, industrial structures and administrative levels, and the extent of pollution’s impact on different types of innovation varies. Combining data from labor surveys and firm registration information, we explore the micro-mechanisms behind these results and find that pollution reduces innovation through impairing the health of local skilled workers, impeding the migration of external skilled workers, and inhibiting the entry of innovative firms. We also test the possible compensating wage and green innovation effects of pollution and find that neither effect holds. Furthermore, spatial analysis shows that local pollution does not significantly reduce the level of innovation in neighboring cities.