Air pollution and technological innovation in China: a two-way dynamic perspective

This study establishes a simultaneous equations model to identify the bi-directional causal relationship between technological innovation and air pollution from a two-way dynamic endogenous perspective, and empirically through a three-stage least squares estimator using panel data from China’s 175 cities over 2008–2019. We find a significantly negative bi-directional relationship between technological innovation and air pollution, with the regression coefficients of −0.378 and −0.440. Economic development level, foreign direct investment, innovation fund and personnel inputs, and government financial support all positively, significantly affect innovation. Air pollution level produces significantly negative effects on invention, utility model, and design patents’ output with regression coefficients of −0.128, −0.070, and −0.117. It indicates that air pollution produces more obvious negative influences on invention patent output than non-invention patent output. An inverted-U-shaped relationship exists between emissions and economic development level. Foreign trade and secondary industry development (infrastructure level) increase (decrease) emissions. Decision-makers should consider the joint influences of all factors; invest to help firms reduce air pollution control and innovation costs; improve the environment, infrastructure, and policies to attract talents; enhance trade and investment liberalisation and facilitation; attract more foreign direct investment inflows; and improve secondary industry development’s quality.