Effect of Input Servitization On Carbon Emission Reduction: Evidence From China's Manufacturing Industry

: As a new form of industry that integrates manufacturing and service, manufacturing 4 servitization is not only conducive to high-quality economic development, but also has a positive 5 effect on reducing carbon emissions. Using panel data of 30 provincial sub-sectors in China, this 6 study systematically investigates the effect of manufacturing input servitization on carbon emission 7 reduction. The results showed that input servitization can reduce carbon emissions. Concerning the 8 regional heterogeneity, input servitization plays a relatively more important role in China’s central 9 region. Concerning the industrial heterogeneity, the carbon reduction effect of input servitization 10 in pollution-intensive manufacturing sectors is greater than in non-pollution sectors. Furthermore, 11 the mediating test demonstrates that input servitization reduces carbon emissions by improving 12 technological innovation and optimizing the structure, while technological innovation is more 13 effective in achieving carbon emission reduction. These conclusions show that improving the input 14 servitization level of the manufacturing industry is feasible to coordinating the development of the 15 manufacturing industry and the attaining the goals of China’s carbon emission reduction. 16


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The world economy is rapidly transforming from industry-to service-oriented. China is also 21 gradually shifting from a crude development model that pursues scale and speed to a connotative  a daunting task to achieve the "double carbon" goals of carbon peak by 2030 and carbon neutrality 40 by 2060. Therefore, overcoming the dilemma of economic growth and environmental quality 41 improvement and finding new paths for green transformation have become urgent issues for China. 42 As a new form of industry that integrates manufacturing and service, manufacturing servitization 43 is an important development model for upgrading the manufacturing industry. In the context of a 44 global service-based economy, Vandermerwe and Rada (1988) first used the term "business 45 servitization" in 1988, which means that enterprises no longer solely supply products, but offer the 46 market a combined bundle or package of products and services. To meet the increasing demand of 47 consumers and the globalization of markets, many manufacturing companies are shifting from pure 48 manufacturing to integration of products and services (Matthyssens and Vandenbempt, 1998). 49 Reiskin et al. (1999) further expanded the concept of manufacturing servitization by arguing that 50 all participants in the value chain can achieve a higher value through manufacturing servitization. 51 Currently, most research on manufacturing servitization has focused on its economic effects. 52 Manufacturing servitization has been found to have significant advantages in upgrading China's 53 value chain (Liu et al., 2016) and increasing the domestic value added in exports (Xu et al., 2017). 54 Manufacturing servitization is also seen as a sustainable business strategy at the global level (Mont,55 2002). Manufacturing in Europe is shifting from production to service orientation, and servitization 56 helps European manufacturing firms maintain and expand their competitive advantages (Lay et al.,57 2010). A study analyzing data from global listed companies also shows that the larger the company, 58 the higher the possibilities of the company to increase its level of manufacturing servitization 59 (Neely, 2008).

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In recent years, scholars have found that factors such as energy structure, industrial sector (Dong manufacturing servitization, as an important factor closely related to the above, has environmental 64 effects. From the perspective of input servitization, service factors are cleaner and consume lower 65 energy than energy factors such as coal and natural gas. Therefore, by reducing the proportion of 66 physical inputs in the production process, the energy consumption is reduced, generating a wide 67 environmental benefit (Rothenberg, 2007). In addition, improvements in technological innovation which provides a more reliable identification basis for the empirical study.

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The remainder of the article is organized as follows: In Section 2, we analyze the status of the 79 input servitization of manufacturing industries and carbon emissions in China. In Section 3, we 80 present the theoretical framework and propose the hypotheses. In Section 4, we design an 81 econometric model and describe the data source. In Section 5, we report and discuss the empirical 82 results and conduct some tests. In Section 6, we present the conclusions and policy suggestions.  wearing apparel and leather products, c7 is manufacture of wood and of products of wood and cork, 120 except furniture; manufacture of articles of straw and plaiting materials, c8 is manufacture of paper 121 and paper products, c9 is printing and reproduction of recorded media, c10 is manufacture of coke 122 and refined petroleum products, c11 is manufacture of chemicals and chemical products, c12 is the 123 manufacture of basic pharmaceutical products and pharmaceutical preparations, c13 is manufacture 124 of rubber and plastic products, c14 is manufacture of other non-metallic mineral products, c15 is 125 manufacture of basic metals, c16 is manufacture of fabricated metal products, except machinery 126 and equipment, c17 is manufacture of computer, electronic and optical products, c18 is manufacture 127 of electrical equipment, c19 is manufacture of machinery and equipment n.e.c., c20 is manufacture   as the index of the input servitization level. The calculation formula of the index is as given below: (1)    produce customized products or directly provide services, such as product leasing. This will 208 improve manufacturers' inventory, avoid waste, and reduce CO2 emissions.

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According to many scholars' studies, technological innovation has spillover properties.   As the service elements have demonstrated more potential for green development, along with the 221 reduction of physical, especially energy, input proportion in the total input, the overall input 222 servitization level of the industry, has improved and the energy consumption has been reduced, 223 which has led to a reduction in total carbon emissions with higher technology.

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This transformation and upgrading of services will lead to the concentration of service factors, 225 and the substitution of service factors for energy factors will reduce the dependence of enterprises 226 on energy, reduce energy consumption, and further optimize the input structure. This is a 227 "disruptive" innovation, and this kind of production, which integrates physical and service 228 elements, will have the effect of "1+1>2", promoting the paradigm shift from pure physical 229 production to a new mode with servitization input and output. 230 The analysis reveals that the optimization of industrial structure is based on technological 231 innovation, but its emphasis is more on the optimization of the internal structure of the enterprise,

Preliminary analysis 299
Considering the prerequisites for econometric models, we begin with some preliminary analyses, 300 including a statistical description and a correlation test for the main variables.  supported. Therefore, we believe that the service transformation of manufacturing industry will 324 contribute to the reduction of carbon emissions in China to a greater extent and play a more active 325 role in protecting ecology and achieving green development.

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Based on previous studies, we argue that endogeneity may exist due to reverse causality.

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Therefore, in column (1) of Table 4, we select a one-period lag of the independent variable, 329 complete consumption coefficient, as the instrumental variable, and perform two-stage least 330 squares estimation. The results are significant at 1% level, indicating that the regression results 331 remain robust after accounting for the potential endogeneity problem.

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To test the reliability of this study, in column (2), we use the direct consumption coefficient to

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According to the previous literature, the servitization transformation of manufacturing enterprises has certain regional characteristics. Therefore, in this study, 30 provinces are classified 346 into four regions, namely, eastern, central, western, and northeastern, to examine the regional 347 heterogeneity of input servitization's carbon emission reduction effects. Table 5 shows that the  Table 7 reports the results of the mediating effects. Column (1) of Table 7 corresponds to 411 equation (3) and is consistent with the results in column (4) of Table 3. Columns (2) and (3) of intensity of the former is higher than that of the latter.