Environmental Regulation and Export Product Quality: Evidence from Chinese Firms

The Chinese government adopted a series of pollution reduction targets in its eleventh five-year (2006-2010) economic development program. Whether this program can achieve its goal of pollution reduction and quality improvement for exports is of vital importance for China’s sustainable development. This paper aims to investigate the effects of these environmental regulation policies on export product quality by using the quasi-difference-in-difference method. Empirical results show that the implementation of these pollution reduction targets significantly reduces export product quality. This negative impact is more profound in western regions, capital-intensive sectors and privately-owned firms. Moreover, the negative effect is only observed among firms exporting to non-OECD countries, whereas the export quality of firms exporting to OECD countries is positively affected by the new policy. Lastly, our extended analysis shows that the negative effects can be mitigated through product switching within the firms.