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Going Green in China: Firms’ Responses to Stricter Environmental Regulations

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  • Fan, Haichao
  • Graff Zivin, Joshua
  • Kou, Zonglai
  • Liu, Xueyue
  • Wang, Huanhuan

Abstract

This paper examines the effect of stringent environmental regulations on firms' environmental practices, economic performance, and environmental innovation. Reducing COD levels by 10% relative to 2005 levels is an aim of the Chinese 11th Five-Year Plan. Using a difference-in-differences framework based on a comprehensive firm-level dataset, we find that more stringent environmental regulations faced by firms are positively associated with a greater probability of reducing COD emissions; also, there exists an evident heterogeneous effect across industries with different pollution intensities. Stricter environmental regulations also account for the sharp decline in firms' profits, capital, and labor. After executing a complete chain of tests of the underlying mechanisms, we find that firms rely more on recycling and abatement investment than on innovations when meeting environmental requirements.
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  • Fan, Haichao & Graff Zivin, Joshua & Kou, Zonglai & Liu, Xueyue & Wang, Huanhuan, 2019. "Going Green in China: Firms’ Responses to Stricter Environmental Regulations," University of California at San Diego, Economics Working Paper Series qt7tt8g4s3, Department of Economics, UC San Diego.
    • Handle: RePEc:cdl:ucsdec:qt7tt8g4s3
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    References listed on IDEAS

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    4. Geng, Yong & Liu, Wei & Li, Kai & Chen, Hanshu, 2021. "Environmental regulation and corporate tax avoidance: A quasi-natural experiment based on the eleventh Five-Year Plan in China," Energy Economics, Elsevier, vol. 99(C).
    5. Kwon, Ohyun & Zhao, Hao & Zhao, Min Qiang, 2023. "Global firms and emissions: Investigating the dual channels of emissions abatement," Journal of Environmental Economics and Management, Elsevier, vol. 118(C).
    6. Hong Chen & Yang Xu, 2021. "Environmental Regulation and Exports: Evidence from the Comprehensive Air Pollution Policy in China," IJERPH, MDPI, vol. 18(3), pages 1-11, February.
    7. Lingxiao Zhao & Yunpeng Tang & Yan Liu, 2023. "How Does Environmental Tax Influence the Scale and Efficiency of Green Investment among China’s Heavily Polluting Enterprises?," Sustainability, MDPI, vol. 15(20), pages 1-26, October.
    8. Chen, Gao & Xu, Jian & Qi, Yu, 2022. "Environmental (de)centralization and local environmental governance: Evidence from a natural experiment in China," China Economic Review, Elsevier, vol. 72(C).
    9. Yong Soo Keong & Partha Sen & Cao Jing, 2024. "An Inquiry into the North-South Management Gap in China," CESifo Working Paper Series 10952, CESifo.
    10. Liu, Mengdi & Tan, Ruipeng & Zhang, Bing, 2021. "The costs of “blue sky”: Environmental regulation, technology upgrading, and labor demand in China," Journal of Development Economics, Elsevier, vol. 150(C).
    11. Sangeeta Bansal & Massimo Filippini & Suchita Srinivasan, 2023. "How Regulation Might Fail to Reduce Energy Consumption While Still Stimulating Total Factor Productivity Growth," CER-ETH Economics working paper series 23/379, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
    12. Yue Hua & Yue Lu & Ruili Zhao, 2022. "Global value chain engagement and air pollution: Evidence from Chinese firms," Journal of Economic Surveys, Wiley Blackwell, vol. 36(3), pages 708-727, July.
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    14. Zhang, Yijun & Li, Xiaoping & Song, Yi & Jiang, Feitao, 2021. "Can green industrial policy improve total factor productivity? Firm-level evidence from China," Structural Change and Economic Dynamics, Elsevier, vol. 59(C), pages 51-62.
    15. Xiufeng Zhang & Yan Li & Ke Shi & Yanchao Feng, 2022. "How Do Environmental Technology Standards Affect the Green Transformation? New Evidence from China," IJERPH, MDPI, vol. 19(10), pages 1-16, May.
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    More about this item

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • K32 - Law and Economics - - Other Substantive Areas of Law - - - Energy, Environmental, Health, and Safety Law
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling

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