With the development of the big data analytic, cloud computing, artificial intelligence, Internet of Things, and other next-generation information and communications technology (ICT), the industrial sectors around the world are at a critical stage of integration with the digital economy. Digital transformation has gradually become a new pathway for the sustainable development of industrial economy, and digital technology has become the driving force of economic growth (Kunkel and Matthess, 2020). In addition, environmental quality has been declining in industrializing countries, and the environmental performance of manufacturing enterprises in these countries tends to be poor (Wen and Lee, 2020). Can industrial digital transformation break the mantra that industry is inseparable from pollution? Judging from China’s experience that environmental performance has been significantly improved during the past two decades of the rapid development of the ICT industry, digital technologies should have contributed to improving environmental performance and industrial green development.
Digital technology includes the adoption of the Internet or smart devices to collect, store, analyze, and share information, including the application of ICT to improve the efficiency of production and economic activities. However, two confusing words exist in terms of digital transformation: digitization and digitalization. Digitization refers to the transition from analog to digital, whereas digitalization refers to the integration of digital technologies and various industrial processes of manufacturing enterprises. As defined by Lange et al. (2020), digitalization means the increase of ICT in the whole economy and society. Therefore, the digital transformation of economy and society in the digital economy can be expressed by the word “digitalization,” and industrial digitalization refers to the adoption of ICT or digital technologies in industrial development. This study holds that the concepts of industrial digital transformation and industrial digitalization are consistent, and both are based on the application of ICT.
Although the trend of industrial digital transformation is inevitable and brings opportunities to the development of the industry, the relationship between industrial digitalization and enterprise performance in economic and environmental terms remains understudied (Li et al., 2020). The Solow Productivity Paradox, which describes the paradoxical relationship between high-speed information technology investment and slow-growing productivity, has been a widely discussed topic in the economics literature (Oleaner and Sichel, 2000; Acemoglu et al., 2014). Certain contributions sustain the assertion for the existence and non-existence of ICT Productivity Paradox. However, most studies argue that enterprises not only use ICT to improve process efficiency but also improve the capabilities of product design and service innovation (Neuhofer et al., 2015; Martínez-Caro, 2020). An explanation of ICT Productivity Paradox is that ICT is used to achieve some social goals, such as reducing labor fatigue and reducing pollution, which cannot be observed in traditional statistical indicators. As China has experienced over the past few decades, ICT may help decouple industrial sector growth from various environmental indicators.
The net impact of ICT on the environment is not only mixed in empirical evidence but also theoretically ambiguous (Dedrick, 2010; Lange et al., 2020). Empirically, some studies show the environmental benefits from ICT adoption (Lu, 2018; Khan, 2019), whereas others find that ICT adoption increases energy consumption and pollution (Park et al., 2018; Avom et al., 2020). Berkhout and Hertin (2001), Beier et al. (2018), and Kunkel and Matthess (2020) propose a theoretical framework, which classifies the environmental effects of ICT adoption into two aspects, to reconcile the two pieces of conflicting evidences. The first is the direct effect, which means that ICT increases the energy consumption and resource use in the life cycle, thus reducing environmental performance (Berkhout and Hertin, 2001). The second is indirect effect, which indicates that ICT adoption affects the production scale, product structure, and process efficiency, thus affecting environmental performance (Beier et al., 2018; Kunkel and Matthess, 2020). Both effects form a nonlinear relationship between ICT penetration and pollutant emissions, leading to inconsistent conclusions drawn from different samples (Higón, 2017; Avom et al., 2020). Therefore, clarifying how industrial digitalization affects the environment is more important than identifying their correlation.
Enterprise investment in improving environmental performance is the driving force for sustainable economic development, although the government also plays an important role. Exploring the driving factors of enterprise environmental performance is also an important topic in the field of environmental economics, as the number of studies on the environmental behavior of microenterprises is increasing (Zhang et al., 2020; Wen and Lee, 2020). However, literature on the influence and mechanism of how industrial digitalization affects the enterprise environmental performance is limited. Environmental technologies have two types: front-end cleaner production technologies and pipe-end treatment technologies. The type of environmental technology adopted by manufacturing enterprises to achieve their environmental goals has different policy implications to the sustainable economic development. However, identifying which environmental technology is being used on the basis of macro data is difficult. To decouple industrial economic development from environmental indicators in the era of digital economy, further exploring the relationship between industrial digital transformation and the choice of environmental technology is necessary.
This study aims to explore the impact and mechanism of industrial digitalization on the environmental performance of manufacturing enterprises in China. Data about environmental information at the enterprise level are scarce, and most related studies use the data of listed enterprises or survey data from small samples (Hu et al., 2019). Different from most studies, this research uses a unique dataset at the enterprise level from 2002 to 2012, including pollutant information and financial information. The large sample of microenterprise data leads to some additional interesting findings in this study, which enriches the literature in this field of enterprise environmental behavior and the theory of digital economy. The contribution of this research to literature mainly includes the following aspects.
First, it provides a novel explanation for the decoupling of industrial sector growth from various environmental indicators from the perspective of industrial digital transformation. The research not only provides a new perspective for understanding the improvement of environmental performance in China during the process of industrialization but also gives ideas for developing or industrializing countries to explore the pathway of sustainable industrial development. Second, this study enriches the literature on ICT Productivity Paradox. Although industrial digitalization does not improve productivity, it enhances the green total factor productivity (GTFP) and environmental performance. ICT investment or industrial digitalization has brought about many welfare improvements that cannot be observed in traditional statistical indicators. Third, this work identifies the structural and technology effects of industrial digital transformation on the enterprise environmental performance. Specifically, it provides a detailed discussion of the influence of industrial digitalization on the environmental technology choice of enterprises. This study shows that industrial digitalization promotes manufacturing enterprises to adopt front-end cleaner production technologies, rather than pipe-end pollutant treatment technologies. It also suggests that digital transformation is an important driving force for the decoupling of industrial development and environmental indicators in the era of digital economy.
The remainder of this paper is structured as follows: Section 2 provides a review of the literature and hypotheses. Section 3 introduces the data, variables, and econometric models. Section 4 presents the empirical results. Section 5 investigates the role of technology factors in the environmental effects of industrial digital transformation. The final section concludes.