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Pollution control and foreign firms’ exit behavior in China

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  • Greaney, Theresa M.
  • Li, Yao
  • Tu, Dongmei

Abstract

China faces a common dilemma of how to maintain rapid economic growth while also reducing the pollution that has accompanied growth. Will stricter pollution controls drive away the foreign firms that have helped spur growth in China? This paper studies the effects of the Two-Control-Zone (TCZ) pollution control policy on foreign firms’ exit behavior in China. Based on firm-level data from 1998 to 2009, we find that foreign firms’ responses are not significantly different from domestic firms on average once environmental regulations impose an added cost of business. However, foreign firms’ responses to stricter pollution controls tend to differ based on various firm characteristics. Our estimation indicates that larger size, higher productivity and exporting all make foreign firms less likely to exit than similar domestic firms in regions with stricter pollution control.

Suggested Citation

  • Greaney, Theresa M. & Li, Yao & Tu, Dongmei, 2017. "Pollution control and foreign firms’ exit behavior in China," Journal of Asian Economics, Elsevier, vol. 48(C), pages 148-159.
    • Handle: RePEc:eee:asieco:v:48:y:2017:i:c:p:148-159
    DOI: 10.1016/j.asieco.2016.10.006
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    Cited by:

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    2. Chuanchuan Li & Lei Li & Haodan Tang & Yanyan Zheng & Fangming Gong, 2023. "Human Capital Development and Its Influence on FDI Withdrawal: An Empirical Analysis," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 31(5), pages 116-134, September.
    3. Shufen Guo & Ludi Wen & Yanrui Wu & Xiaohang Yue & Guilian Fan, 2020. "Fiscal Decentralization and Local Environmental Pollution in China," IJERPH, MDPI, vol. 17(22), pages 1-17, November.
    4. Wang, Enci & Su, Bin & Zhong, Sheng & Guo, Qinxin, 2022. "China's Embodied SO2 Emissions and Aggregate Embodied SO2 Intensities in Interprovincial and International Trade," Technological Forecasting and Social Change, Elsevier, vol. 177(C).
    5. Dongmei Tu & Yao Li & Yong Zeng, 2019. "The Effects Of Environmental Regulation On Exporters’ Exiting Behavior: The Evidence From China," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 64(02), pages 301-321, March.
    6. Jiangfeng Hu & Zhao Wang & Qinghua Huang & Xiaoqin Zhang, 2019. "Environmental Regulation Intensity, Foreign Direct Investment, and Green Technology Spillover—An Empirical Study," Sustainability, MDPI, vol. 11(10), pages 1-15, May.
    7. Yusen Gao & Changsheng Hu & Yue Yang, 2022. "Will tougher environmental policy reduce the employment of industrial enterprises? The heterogeneity analysis based on enterprise level and city level," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(6), pages 1810-1834, September.

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    More about this item

    Keywords

    Foreign direct investment; Pollution control; Firm exiting; Export;
    All these keywords.

    JEL classification:

    • F18 - International Economics - - Trade - - - Trade and Environment
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

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