Abstract
This study investigates the effect of mandatory pollution abatement on the export product quality of firms. Using the chemical oxygen demand reduction targets specified in the 11th Five-year Plan of China as an exogenous shock, we document that firms under stringent environmental regulation experience an upgrading in their export product quality, and our findings remain robust under a battery of tests. Plausible mechanisms are reduced wastewater emissions, the adoption of sewage treatment facilities, and promoted innovation. We show that the effect is highly pronounced in non-state-owned enterprises and firms located in downstream cities. Our findings provide policy implications on unintended consequences of environmental regulation on local firms’ product quality.
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