How do technological innovation and fiscal decentralization affect the environment? A story of the fourth industrial revolution and sustainable growth

Abstract

Deteriorating environmental quality poses a serious threat to life on earth. Similar to other countries, China has been attempting to reduce its reliance on non-renewable energy sources by adopting new energy-efficient technologies that help create a more sustainable industrial structure. Various studies have been conducted to determine the leading causes of environmental degradation. However, unlike international trade, economic activities, and eco-innovation, the political structure of a country is often ignored by scholars because of its indirect impact—which is difficult to evaluate—on emission reduction. In this study, we examine the impact of technological innovation and fiscal decentralization on carbon dioxide (CO2) emissions in the presence of gross domestic product (GDP) and globalization in the case of China for the period 2005Q1 to 2018Q4. By using time series econometric techniques, we find that technological innovation, fiscal decentralization, GDP, and globalization are influential factors in explaining CO2 emissions in China. In terms of policy implications, we suggest that to deal with deteriorating environmental quality, China needs to formulate policies to mitigate emission levels by promoting an energy-efficient system. Moreover, to smoothen the process, it is imperative to clarify the responsibilities at different levels of government to successfully achieve the targets of low CO2 emissions and energy-saving functions of fiscal expenditures.