The Determinants of Pollution Levels: Firm-Level Evidence from Chinese Manufacturing

Abstract:     
Using a large and unique firm-level data set from the Chinese manufacturing sector, we identify the important determinants of the emission levels of three pollutants in China - sulfur dioxide, waste-water, and soot. Our main findings are: 1) compared to state-owned enterprises (SOEs), foreign-invested firms have less intensive emission of pollutants; 2) larger-sized firms, firms that export more, or firms with more educated employees pollute less; (3) firms in regions with less local protection have lower pollution intensity; and (4) better property rights protection reduces pollutant discharges over and beyond the national standards. These results suggest that China should not target foreign firms more harshly in its effort to reduce industrial pollution. Better institutions in the form of lower entry barriers across regional markets and more effective law enforcement are effective means of curbing China’s pressing environmental problems during its current stage of economic development.

Number of Pages in PDF File: 45

Keywords: Pollution, FDI, Local protection, Law enforcement

JEL Classification: L60, O13, Q53

working papers series