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Environmental regulation, firm heterogeneity, and intra-industry reallocation

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  • Wang, Qian
  • Zhu, Linke

Abstract

We describe a model with firm heterogeneity and endogenous pollution abatement to show how emission intensity and exit/entry selections vary across firms. Using Chinese firm-level emission and production data, we find evidence that low productivity firms have higher emission intensity. The emission intensity of firms with productivity below 10 percentile is 5.26 times larger than firms with productivity above 90 percentile. Combining the Annual Survey of Chinese Industrial Enterprises (CIE) data, and applying a triple-difference research design, we find that firms with high emission intensity or low productivity have a higher probability of exit when exposed to strict environmental policy. We also find the exit of unproductive firms contributes to aggregate productivity and strict environmental policy can help to reduce misallocation.

Suggested Citation

  • Wang, Qian & Zhu, Linke, 2021. "Environmental regulation, firm heterogeneity, and intra-industry reallocation," China Economic Review, Elsevier, vol. 68(C).
    • Handle: RePEc:eee:chieco:v:68:y:2021:i:c:s1043951x21000663
    DOI: 10.1016/j.chieco.2021.101648
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    3. Bai, Caiquan & Liu, Hangjuan & Zhang, Rongjie & Feng, Chen, 2023. "Blessing or curse? Market-driven environmental regulation and enterprises' total factor productivity: Evidence from China's carbon market pilots," Energy Economics, Elsevier, vol. 117(C).
    4. Xu Ou & Haiwei Jiang, 2023. "The Impact of Environmental Regulation on Firm Performance: Evidence from the Pulp and Paper Industry in China," IJERPH, MDPI, vol. 20(4), pages 1-18, February.
    5. Shizhong Peng & Haoran Peng & Shirong Pan & Jun Wu, 2023. "Digital Transformation, Green Innovation, and Pollution Abatement: Evidence from China," Sustainability, MDPI, vol. 15(8), pages 1-18, April.

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