The Pain of Breathing:  How Does Haze Pollution Affect Urban Innovation?

Abstract Innovation plays an important role in achieving green-growth economic development in China, while the spread of haze pollution (also called smog) inhibits innovation activities. Using panel data on 265 cities at the prefecture level in China from 2001 to 2016, this paper investigates the relationship between haze pollution and urban innovation. The conclusions are as follows. First, haze pollution has a significant inhibitory effect on urban innovation. After we consider endogeneity, eliminate extreme values, and incorporate spatial correlation, we find that the negative impact of haze pollution on urban innovation still exists. Second, the channels through which haze pollution affects urban innovation can mainly be attributed to population density, the size of the home market, and economic activity. Third, among the different regions in China, the inhibitory effect of haze pollution on innovation is the most serious in the eastern region, followed by the central and western regions. Moreover, across diverse Chinese cities, the significant inhibitory effects of haze pollution on innovation are mainly in cities that are not provincial capitals and resource-based cities. Accordingly, efficient management of haze pollution is a critical prerequisite and effective guarantee for improving urban innovation.JEL codes: K32; O13; O31; R11