Abatement effect of exporting and environmental regulation stringency: evidence from a natural experiment in China

Prior studies obtained mixed conclusions on the relationship between firm exporting and pollution emissions, probably because the role of environmental regulation has been ignored in this relationship. This study focuses on whether the abatement effect of exporting is related to the stringency of environmental regulation. To avoid measurement bias in the environmental regulation stringency faced by firms, we use the two control zones policy implemented in China to reduce sulfur dioxide (SO2) emissions as a natural experiment to distinguish the difference in the SO2 regulation stringency faced by different firms. Empirical results show that Chinese manufacturing firms can significantly reduce their SO2 emissions intensity by exporting, but the abatement effect of exporting occurs only in the firms regulated by the two control zones policy. This result confirms for the first time that the abatement effect of exporting stems from the incentives of stringent environmental regulations. Further analysis shows that the abatement effect of exporting is realized mainly through firm investment in source control technologies rather than in end-of-pipe treatment technologies. The findings of this study suggest that stringent environmental regulations are important for emerging and developing countries to achieve environment-friendly exports.

Automated summary

This study investigates whether the reduction in pollution emissions from exporting is related to the stringency of environmental regulation. Using the two control zones policy in China as a natural experiment, the study finds that Chinese manufacturing firms can significantly reduce their SO2 emissions intensity through exporting, but only in the firms regulated by the two control zones policy. The study confirms for the first time that the abatement effect of exporting is driven by stringent environmental regulations. Further analysis reveals that the abatement effect is mainly achieved through firm investment in source control technologies.