The effect of the carbon emission trading scheme on a firm’s total factor productivity: An analysis of corporate green innovation and resource allocation efficiency

Abstract

This study investigates the effect of the carbon emission trading scheme on a firm’s total factor productivity in China. With a sample from 2008 to 2019, applying the time-varying DID method, our empirical results reveal that the carbon emission trading scheme significantly improves a firm’s total factor productivity, which provides evidence for Porter’s hypothesis. Moreover, there are two channels through which the total factor productivity is impacted: the corporate green innovation channel and the resource allocation efficiency channel. Furthermore, the impact of the carbon emission trading scheme is more pronounced for private firms, and firms in the provinces with higher institutional development, lower environmental quality, and greater law enforcement of environmental protection tend to have larger total factor productivity. Our models survive numerous robustness checks.