Renewable energy clusters and local economic development in China: Innovation and employment effects

Abstract

This paper examines whether renewable energy clusters generate measurable innovation spillovers and employment gains across Chinese prefectural-level cities. China has emerged as the world's largest producer and installer of renewable energy capacity, yet evidence on the local economic consequences of geographic clustering in this sector remains thin. Using a panel of 284 Chinese prefecture-level cities observed annually from 2005 to 2022, we combine a spatial Durbin model with a two-way fixed effects estimator to identify within-city and cross-city effects. We instrument cluster formation using provincial feed-in-tariff policy adoption to address reverse causality between local economic conditions and cluster emergence. Results show that a one-standard-deviation increase in cluster intensity raises local patent filings by 8.3 percent and renewable-sector employment by 6.1 percent. Positive spillovers extend to neighboring cities within 300 km, confirming knowledge diffusion beyond cluster boundaries. Heterogeneity analysis reveals that effects are stronger in cities with higher human capital stocks and better transport infrastructure. The findings carry direct implications for China's dual-carbon target and for industrial policy design in middle-income economies undertaking green transitions.