The impact of green energy infrastructure on firm productivity: Evidence from the Three Gorges Project in China

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Journal Article
International Review of Economics and Finance, 2021, 71, pp. 385-406
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© 2020 Elsevier Inc. Despite the dominant role of hydropower in the global power generation mix and the popularity of studying the productivity impact of infrastructure investment, there is a lack of research regarding the impact of hydropower projects on firm productivity. Such a positive impact can promote a more ambitious action plan for mitigating carbon emissions. This study investigates whether and how China's Three Gorges Project (TGP), the world's largest hydropower project, may affect the productivity of manufacturing firms in the province where the project is located. The empirical results reveal a statistically and economically significant positive impact of the TGP on manufacturing firms’ productivity, and various robustness checks confirm the soundness of our findings. We also verify three channels, the capital deepening effect, the scale effect, and the competition effect, robustly. This productivity impact suggests that hydropower projects have an economic benefit in addition to the other well-known ones, such as flood control and improvement of the shipping capacity. The findings imply that policy makers need to consider the broad benefits of green energy beyond the conventional cost-benefit tradeoff, which can help justify some marginal green energy projects and technologies.
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