The relationship between total factor productivity and environmental quality: A sustainable future with innovation input

Abstract

Environmental quality has become an important issue around the world and has received much public attention in China. China is currently experiencing a rapid improvement in industrialization and urbanization. However, irrational resource exploitation and excessive energy consumption in the development track of the economy have contributed to the severe environmental quality crisis in China. Consequently, this study is devoted to exploring the association between economic development measured by total factor productivity (TFP) and environmental quality identified by SO2 emissions and PM2.5 concentrations in peripheral cities of China between 2004 and 2018. Using a two-way fixed effects model, we find a negative effect of TFP on environmental quality. Specifically, every 10 % increase in TFP significantly reduces SO2 emissions by 0.844 % and PM2.5 concentrations by 0.121 %. We also conclude that innovation input measured by science and technology expenditure plays a mediating role between environmental quality and TFP. Meanwhile, the impact of TFP on the mitigation of environmental problems varies significantly with regard to different regions, TFP scales, and industrial structures. Overall, our findings provide comprehensive insights into prefectural-level TFP and innovation input on environmental quality initiatives.