We provide the first theoretical and empirical study on how the carbon emission regulation affects firm dynamics, including entry, exit, and innovation. Using a difference-in-difference-in-differences empirical strategy, we find that in low-carbon zone pilot cities, in carbon-intensive sectors,...

We study how air pollution affects firm dynamics: entry, exit, innovation, and (aggregate) productivity. Using an instrumental variable strategy, we find that air pollution significantly reduces entry and innovation and raises exit. Moreover, air pollution leaves firms with higher productivity...