China's Low-carbon city policy and manufacturing firms' servitization: Do environmental regulations matterʔ

Abstract

Manufacturing servitization is an effective way to improve both environmental performance and economic benefits in developing countries. In this paper, we first propose the firm-level manufacturing servitization (FMS) measurement method. Then, based on Chinese firm-level data for 2000–2015, we take low-carbon city pilot (LCCP) policy implementation as a quasi-natural experiment to investigate the effect of low-carbon city governance on FMS. The propensity score matching-difference-in-differences (PSM-DID) model results indicate that the construction of LCCP policy could significantly improve FMS. In addition, we explain the promoting effect of low-carbon city governance on FMS by enhancing innovation intensity and promoting pollution factor substitution. Specifically, low-carbon city governance increases the innovation intensity of enterprises and promotes service factors as substitutes for other pollution production factors, changing the service factor input structure. Furthermore, by dynamically decomposing aggregate FMS growth, we found that LCCP policy generates a positive within-firm effect for surviving enterprises. However, the role of the resource reallocation effect has not been fully explored. Based on the findings, this study offers more theoretical backing and empirical substantiation for developing countries' pursuit of simultaneously achieving sustainability and economic growth under environmental regulations.