How does industrial policy affect manufacturing carbon emission? Evidence from Chinese provincial sub-sectoral data.

Abstract

Assessing the environmental impact of industrial policy is of great importance to China's industrial green transformation and high-quality development, while this topic receives little attention in the literature. Based on the panel data of 29 manufacturing industrial sectors in China's 30 provinces from 2006 to 2015, using a model that includes the year, province, and industry fixed-effect, this paper fills the gap by exploring whether and how industrial policy affects carbon emission in Chinese manufacturing. The result shows that industrial policy significantly increases carbon emission in supported industries by 10.3%, which is achieved by increasing industrial energy consumption, relaxing government environmental regulation, and encouraging enterprises to invest more in fixed assets. Further, the effects of industrial policy on carbon emission are heterogeneous in many aspects. In the central and western regions, technology-intensive industries, industries with stronger government intervention, industries with higher exports, industries supported by both central and local governments, and during the 12th Five-Year Plan, the industrial policy will increase carbon emissions more. Our findings for the first time indicate the negative impact of industrial policies on carbon emission reduction in the Chinese manufacturing industry, which implies that traditional selective industrial policies in developing countries like China need a paradigm shift to achieve green development.