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Environmental policy and trade performance: Evidence from China

  • Laura Hering
  • Sandra Poncet

This paper aims at assessing the impact of environmental regulations on the export activity of firms in China. The environmental policy we study is the so- called Two Control Zones (TCZ) policy, which has been implemented in 1998 in China. The aim of this policy was to reduce the sulfur dioxide (SO2) emissions in targeted cities with particularly high air pollution. We use a data set of 265 Chinese cities for the years 1997 to 2003, and exploit variations across time, sectors and firm types to extract the causal effect of the policy on firms’ performance. We indeed expect the TCZ policy to have a larger impact the heavier the pollution content of the activity and the lower the political status of the firm. In line with the political pecking order of firms that exists in China, we expect the impact of the environmental policy to be mitigated by state ownership. Our results are in line with our expectations and suggest that the TCZ policy has been effective. We find that State-owned firms are less intensively affected and thus able to export relatively more, especially in energy intensive sectors. By contrast, we see a relative decline in foreign and private firms’ exports; the more the energy-use of the sector the larger the decline.

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Paper provided by CEPII research center in its series Working Papers with number 2011-30.

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Date of creation: Dec 2011
Date of revision:
Handle: RePEc:cii:cepidt:2011-30
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  1. Judith M. Dean & Mary E. Lovely, 2010. "Trade Growth, Production Fragmentation, and China's Environment," NBER Chapters, in: China's Growing Role in World Trade, pages 429-469 National Bureau of Economic Research, Inc.
  2. Lu, Jiangyong & Tao, Zhigang, 2010. "Determinants of entrepreneurial activities in China," Journal of Business Venturing, Elsevier, vol. 25(3), pages 261-273, May.
  3. Josh Ederington, Arik Levinson & Jenny Minier, 2003. "Footlose and Pollution Free," Working Papers gueconwpa~03-03-04, Georgetown University, Department of Economics.
  4. Hua Wang & Nlandu Mamingi & Benoit Laplante & Susmita Dasgupta, 2003. "Incomplete Enforcement of Pollution Regulation: Bargaining Power of Chinese Factories," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 24(3), pages 245-262, March.
  5. Dean, Judith M. & Lovely, Mary E. & Wang, Hua, 2009. "Are foreign investors attracted to weak environmental regulations? Evaluating the evidence from China," Journal of Development Economics, Elsevier, vol. 90(1), pages 1-13, September.
  6. Andrew B. Bernard & J. Bradford Jensen, 1997. "Exceptional Exporter Performance: Cause, Effect, or Both?," NBER Working Papers 6272, National Bureau of Economic Research, Inc.
  7. Kalina Manova & Shang-Jin Wei & Zhiwei Zhang, 2011. "Firm Exports and Multinational Activity Under Credit Constraints," NBER Working Papers 16905, National Bureau of Economic Research, Inc.
  8. Sandra PONCET, 2002. "A Fragmented China. Measure and Determinants of Chinese Domestic Market Disintegration," Working Papers 200221, CERDI.
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