Air pollution, service development and innovation: Evidence from China

The environment is crucial in economic development. However, the impact of the environment on cities, especially, on urban innovation still needs more attention. Based on city-level and PM(2.5) data from 280 prefecture-level cities and municipalities in China from 2003 to 2016, we empirically studied the influence of haze on urban innovation and its mechanism. The results show that (1) haze has a significant negative impact on urban innovation, which varies with regions, resource-dependent cities, provincial capital cities, and sub-provincial cities. (2) This result appears to be driven by industrial structure. By influencing the development of the service industry, haze affects the level of urban innovation. (3) In particular, advanced producer services and basic producer services are heterogeneous. Advanced producer services have a stronger impact on innovation, while basic producer services are more sensitive to haze. We used the Instrumental Variable (IV) regression to address endogeneity, the conclusion remains robust.