The Impact of Environmental Regulation on Firm Export: Evidence from China’s Ecological Protection Red Line Policy?

• Main Authors: Huayun Zhai, Danlan Liu, Kam C. Chan
• Format: Article
• Language: English
• Published: MDPI AG 2019-10-01
• Series: Sustainability
• Subjects: environmental regulation; porter hypothesis; pollution haven hypothesis
• Online Access: https://www.mdpi.com/2071-1050/11/19/5493

China conducted a comprehensive overhaul of its environmental regulation as of April 2014. The regulation, which calls for a holistic approach to protect the environment, is also called the “Ecological Protection Red Line” (Red Line). It sets comprehensive standards for pollutants and mandates provinces to implement the regulations. The Porter and pollution haven hypotheses were tested for the impact of the Red Line on firm exports using a sample of Chinese A-share firms from 2011 to 2017. Our findings are consistent with the Porter hypothesis. The implementation of the Red Line has a positive impact on a firm’s exports. The findings are robust to alternative metrics of exports and different sub-samples. A firm’s innovation activities (in terms of research and development investments) and production efficiency were found to be the transmission channels, corroborating the underlying logic of the Porter hypothesis. Policy implications are discussed.