Does Environmental Regulation Affect Firm Exports? Evidence from Wastewater Discharge Standard in China

Abstract

This paper examines the effect of water pollution regulation on polluters’ exporting decisions and exporting structure. Using detailed firm-by-product level dataset, we employ a difference-in-differences model to identify the causal relationship between environmental regulation and firms’ exporting performance. We find that the stringent regulation decreases both export likelihood and export values. Moreover, we examine the channels that the environmental regulation could affect firms’ exporting performance through entry-exit of the export market, price transmission, adjustments of exporting destinations, and product switch. The tightening wastewater discharge standard appears to deter the new polluters rather than incumbents to enter the export market. Productive polluters could gain the relative larger export market by lowering down exporting prices and selling more products overseas. In response to this water pollution regulation, polluters would make substantial adjustments in their exporting destinations, exporting products, and exports value via different trade modes.

Keywords: Environmental Regulation, Water Pollution, Export, Pollution Haven Effect

JEL Classification: F18, Q53, Q56