Can air pollution reduce technology transfer? Evidence from China's prefecture-level cities

Air pollution hinders technological innovation, but the causal effects of air pollution on technology transfer are overlooked. We use thermal inversion as an instrumental variable for addressing air pollution endogeneity. The empirical results show that a one-unit increase in air pollution reduces technology transfer strength by 4.5 %. However, air pollution has a strong asymmetry in two directions of technology transfer strength. We find that those cities with worse pollution have an intention to transfer their technologies to cities in other provinces. In the PLFC model, heterogeneity varying with GDP can be addressed to estimate the marginal effect between them. Findings suggest that the marginal effects of air pollution on technology transfer can be divided into two parts based on GDP levels. Within the thresholds (lngdp = 11), the effect of environmental regulations will keep increasing and keep stable beyond the thresholds. In addition, different effects on different cities are also discussed.