Beyond borders: Do exports drive energy efficiency in India's manufacturing firms?

Does exporting encourage firms to become energy efficient? To answer this question, this study investigates the impact of exporting on energy efficiency in Indian manufacturing using firm-level data from the past two decades. To establish this causal linkage, we utilize the propensity score matching-difference in differences (PSM-DID) methodology. Our findings show that firms entering export markets improve their energy efficiency by up to 25 % within three years compared to non-exporters. These results are robust across multiple checks, including alternative matching methods, extended period, additional covariates, alternative energy efficiency measure, instrumental variable approach, and exit analysis. We identify adoption of foreign technology rather than productivity as the primary mechanism driving these gains. Moreover, we find evidence of positive spillover effects, as non-exporting firms in export-intensive industries also experience improvements in energy efficiency. While concerns exist about globalization leading to environmental degradation in developing countries, our study provides evidence that exports can promote green growth. Although international trade cannot substitute for comprehensive environmental policies, it should not be perceived as inherently harmful to environmental outcomes.