Air Quality Monitoring and Total Factor Productivity of Polluting Firms in China

Abstract

In recent decades, sustainable development and environmental protection, especially air quality, have become key concerns for governments as well as scholars. As a typical regulation for air quality monitoring, the Ambient Air Quality Standard (AAQS) (2012) is a good attempt at balancing economic growth and environmental protection in development exploration. Therefore, this paper takes the AAQS (2012) as a quasi-natural experiment to detect its influence on the total factor productivity (TFP) of polluting firms. The results of a DID model suggest that the AAQS (2012) significantly improves the TFP of polluting firms in China even after several robust tests. Further, this paper also finds that firms in high urbanization and with over-investment experience are more sensitive to the new standard. As for the channels, the results show that air quality monitoring affects firms’ TFP by adjusting the industry concentration level and innovation capabilities. This research offers a novel perspective for decision-makers, highlighting the importance of harmonizing economic growth with environmental sustainability.