Does Stronger Environmental Regulation Promote Firms’ Export Sophistication? A Quasi-Natural Experiment Based on Sewage Charges Standard Reform in China

Abstract

Based on the quasi-natural experiment of sewage charges standard reform, this paper adopts a staggered difference-in-difference model to empirically investigate the effect of environmental regulation on firms’ export sophistication and the mechanism of the effect, using the matched data from the Chinese Annual Survey of Industrial Firms and Chinese Custom Trade databases from 2004 to 2013. The results show that (1) the environmental regulation policy of sewage charges standard reform significantly promotes the upgrading of firms’ export sophistication; (2) the impact of sewage charges standard reform on firms’ export sophistication is heterogeneous, in that the promotion effect of sewage charges standard reform on firms’ export sophistication is mainly manifested in simultaneous import and export firms, large-sized firms, and local firms; and (3) the sewage charges standard reform mainly through the mechanisms of innovation compensation effect and product switching effect to promote firms’ export sophistication. This paper provides empirical evidence and policy insights for governments to formulate and implement environmental protection policies appropriately.