Human capital investment and firms’ industrial emissions: Evidence and mechanism

Abstract

Although previous studies have intensively demonstrated the negative impact of pollution on human capital, few studies have explored the opposite dynamic: whether and how investment in human capital affects pollution. In this paper, we empirically examine the effect of human capital improvement on firms’ industrial emissions. We exploit an expanded college enrollment program in China that resulted in a surge in college-educated workers and use a difference-in-differences (DD) strategy to deal with identification. We rely on a unique firm-level dataset that contains comprehensive information on firms’ emissions records. We find that investment in human capital significantly and substantially reduces firms’ emissions, and the underlying channels are firms’ industrial upgrading, use of cleaner energy during the production process, and better compliance with environmental regulations. Our findings document an important but unanticipated benefit of human capital improvement.