Does environmental regulation improve firms' export product quality? Empirical evidence based on China's key regional air pollution and control policy

Abstract

Promoting high-quality export development is a crucial strategic decision for economic transformation and upgrading. However, the effects and potential mechanisms of environmental regulations on firms' export product quality remain a subject of debate. This study investigates the impact of environmental regulations on firms' export product quality by analyzing firm-level data from 2000 to 2013. The study employs a quasi-natural experiment that focuses on the Key Air Pollution Control Zone (KRAPC) implemented by the central government in 2010. We found that environmental regulations, as represented by this policy, significantly enhance the firms' export product quality. At the macro perspective, this improvement primarily stems from the reduction of air pollution in the designated areas, and advancements in regional innovation and human capital. At the micro perspective, the main mechanisms are the reallocation of resources and the “Porter effect”. The former mainly involves reducing the production scale or even withdrawing high-energy-consuming and high-polluting enterprises, resulting in improved export product quality among new market entrants. The latter is manifested through enhanced enterprise innovation abilities, increased productivity, and reduced production costs. Furthermore, the impact of the KRAPC policy on firms’ export product quality varies depending on factors such as ownership, size, and technology intensity. In addition, the policy has positive spillover effects on neighboring non-key areas. Therefore, this study supports the government in formulating a scientific environmental policy that promotes a mutually beneficial relationship between economic growth and environmental protection.