Environmental regulations and export performance: firm-level evidence from China’s low-carbon pilot policy

Abstract

The rapid increase in global carbon emissions has raised significant concerns, prompting various environmental regulations, including China’s low-carbon pilot policy. Prior studies have shown mixed results regarding the impact of environmental regulations on firms’ export performance. Using data from Chinese industrial firms from 2001 to 2015, this study investigates how the low-carbon pilot policy, a quasi-experiment, influences firms’ exports. We employ the Heckman Two-Step Method and the Difference-in-Differences approach to separate the effects on firms’ export participation and the effects on export scales. We find that firms in the pilot provinces/cities become less likely to export after the implementation of the low-carbon pilot policy compared to firms in the non-pilot regions, resulting in a relative decrease in export probability by 4.5 percentage points. For the firms that export, their export values relatively decrease by 10 percent after the policy implementation. The effects are mainly driven by firms in Eastern China. The policy leads to higher exit rates and lower entry rates in international markets for firms in pilot regions. After the implementation of the low-carbon pilot policy, exporting firms increase the unit price of their export products, reduce the quantity of export products, and diversify both their export destinations and product types. However, we do not find evidence supporting the Pollution Haven mechanism.