Abstract
China conducted a comprehensive overhaul of its environmental regulation as of April 2014. The regulation, which calls for a holistic approach to protect the environment, is also called the “Ecological Protection Red Line” (Red Line). It sets comprehensive standards for pollutants and mandates provinces to implement the regulations. The Porter and pollution haven hypotheses were tested for the impact of the Red Line on firm exports using a sample of Chinese A-share firms from 2011 to 2017. Our findings are consistent with the Porter hypothesis. The implementation of the Red Line has a positive impact on a firm’s exports. The findings are robust to alternative metrics of exports and different sub-samples. A firm’s innovation activities (in terms of research and development investments) and production efficiency were found to be the transmission channels, corroborating the underlying logic of the Porter hypothesis. Policy implications are discussed.
Highlights
China has had spectacular economic growth for the last 40 years
The purpose of this paper is to test the Porter vis-à-vis the pollution haven hypothesis regarding the impact of tightening of environmental regulation on firm exports, using the Red Line as an exogenous shock in China
Zhu et al [11] did not find that environmental protection policies were effective in China, while our studies indicate there are some positive aspects of the Red Line policy
Summary
China has had spectacular economic growth for the last 40 years. According to the World Bank, the average real GDP growth rate of China was 9.6% from 1978 to 2017, despite recent slower GDP growth rates of 6.7% and 6.9% in 2016 and 2017, respectively (the details are provided in https://data.worldbank. org/indicator/NY.GDP.MKTP.KD.ZG?end=2017&locations=CN&start=1961&view=chart (accessed 15 April 2019)). Pollution is widespread, and the ineffectiveness of environmental protection is of great concern in China (Du et al [1]; Ji et al [2]). The pollution haven hypothesis is supported in empirical studies in China (Xu et al [5], India (Rana and Sharma [6]), and East European countries (Martinez-Zarzoso et al [7]). In contrast to the pollution haven hypothesis, Porter [8] hypothesizes that if environmental protection policies are designed properly, they stimulate firms to innovate and compete. Sustainability 2019, 11, 5493 health, promote the construction of the ecological civilization, and promote sustainable economic and social development” (the details are provided in http://www.law-lib.com/law/law_view.asp?id=6229 (accessed 13 April 2019)). Different from the previous silo approach of having separate legislation for land, forest, air, solid waste, and water pollution, the Environmental Protection Law represents a holistic approach to environment protection
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