Impact of Environmental Regulation on Firm Exports: Evidence from a Quasi-Natural Experiment in China

ABSTRACT

To estimate the short term effect of environmental regulation on firm exports, this study considers China’s 2003 City Air Pollution Prevention and Control Program (CAPPCP) in a quasi-natural experiment with microdata from 2000–2007. Using the difference-in-differences (DID) and matching DID methods, our findings indicate that CAPPCP reduced firm exports by 6.2% and 12.3%, respectively. A mechanism analysis examines the three channels through which CAPPCP affects firm exports: total factor productivity, production costs, and factor endowments. Furthermore, a heterogeneity analysis reveals that non-state-owned firms, small-scale firms, and firms in highly polluting industries have stronger negative responses to environmental regulations.

KEYWORDS:

• Environmental regulation
• firm export
• city air pollution prevention and control program
• China

JEL CODE:

• D24
• Q53
• Q56

Acknowledgments

We thank the financial support provided by the National Natural Science Foundation of China (71903068, 71934003), the Guizhou Province Ordinary Colleges and Universities Youth Science and Technology Talent Growth Project (Qianjiaohe KY word [2022] 196), the Guizhou Provincial Department of Education University Humanities and Social Sciences Research Project (2022QN002), the University’s Humanities and Social Sciences Youth Project of the Jiangxi province (JJ21205), the China Postdoctoral Science Foundation (2021M701507), and the Science & Technology Project of Jiangxi Education Department (GJJ200534).

Disclosure Statement

No potential conflict of interest was reported by the author(s).

Notes

1. TFP refers to Levinsohn and Petrin’s ([LP] 2003) use of intermediate inputs as proxy variables, which effectively correct simultaneity problems in the ordinary least squares (OLS) estimation of productivity. As companies report the use of intermediate inputs in almost every period, the LP method significantly alleviates the deviation caused by discarded samples compared to the Olley and Pakes (OP) method (1996). Therefore, this study selects the LP method and uses the net output level, capital stock, labor, and intermediate inputs deflated to the year 2000 to measure TFP at the firm level.

Additional information

Funding

This work was supported by the National Natural Science Foundation of China [71903068, 71934003]; Guizhou Province Ordinary Colleges and Universities Youth Science and Technology Talent Growth Project [Qianjiaohe KY word [2022] 196]; Guizhou Provincial Department of Education University Humanities and Social Sciences Research Project [2022QN002]; University’s Humanities and Social Sciences Youth Project of the Jiangxi province [JJ21205]; China Postdoctoral Science Foundation [2021M701507]; Science & Technology Project of Jiangxi Education Department [GJJ200534].