The impact of air pollution on startups and structural transformation: Evidence from newly registered enterprises in China

Abstract

This paper examines the effects of air pollution on the number of startups and industry structures in China, using data on startups in various industries and air pollution at the county level. The research shows that air pollution has a significant negative impact on the number of startups, with a 1 μg/m3 rise in PM2.5 causing a 1.83% drop in the number of startups. The tertiary industry is most negatively impacted by air pollution, with a 1 μg/m3 rise in PM2.5 resulting in a 2.70% decline in the number of startups in this sector. Heterogeneity analysis reveals that sub-industries including scientific research and technical services, education, health and public services, and culture and entertainment are those that are most negatively impacted by air pollution. Nonlinear analysis shows that the harmful consequences of air pollution only become noticeable when the concentration of pollutants exceeds a particular point. Further research reveals that air pollution drives the relocation of entrepreneurial activity, which may be a significant influencing factor for local startups. This paper fills an academic gap on air pollution's effects on local economies and industrial structures. The results show that the natural environment is a crucial component of the business environment and has a significant practical impact on boosting regional economic vitality and promoting the transformation of industrial structures.