Facilitating or inhibiting: coal-fired power generation and firm productivity in China

The study investigates the causal impact of opening coal-fired power plants on firm productivity, utilizing data on the distribution of these plants and firm-level microdata in China from 1998 to 2014. The research design relies on a difference-in-differences strategy to compare productivity differences between firms located near and far away from coal-fired power plants before and after their opening. The results show that the opening of coal-fired power plants reduced the total factor productivity of surrounding firms by 7.8% on average. By exploring its mechanism, we found that this negative effect is mainly due to serious air pollution caused by the opening of coal-fired power plants. For every 1% increase in sulphur dioxide emitted by a coal-fired power plant, the TFP of surrounding firms decreases by 0.42%. Further analysis shows that coal-fired power plants have a greater negative impact on total factor productivity of private firms, small firms, and regions with lower environmental regulation intensity. This study deepens the understanding of the negative externalities of energy infrastructure and resource utilization, and emphasizes the importance of energy transition.