Environmental regulation and intermediate imports: Firm-product-level evidence

Abstract

This study examines the effects of domestic environmental regulations on import activity. Using a panel of firm-product-level data and variations in regulatory stringency across products established by China’s Eleventh Five-Year Plan for Environmental Protection (covering 2006–2010), it reveals that tougher regulations on emission-intensive industries at home led to increases in downstream manufacturers’ imports of emission-intensive intermediate inputs. Specifically, a 1% increase in sulfur dioxide emission intensity resulted in a 0.026% increase in intermediate imports after the implementation of the regulation. A back-of-the-envelope calculation suggests that, although the regulation increased emissions in source countries, it reduced global emissions of sulfur oxides and carbon dioxide. This is because the increases in imports caused by the regulation mainly came from countries with lower emission intensity than China. The regulation did not disproportionately increase imports from or emissions in developing countries.