Does environmental regulation increase domestic value-added in exports? An empirical study of cleaner production standards in China. (March 2023)

• Record Type: Journal Article
• Authors: Sun, Chuanwang; Zhan, Yanhong; Gao, Xiang
• Is Part Of: World development. Volume 163(2023)
• Publication Date: 2023-03
• Subjects: Environmental regulation -- Domestic value-added in exports -- Cleaner production standards -- Exports upgrading; Economic history -- 1990- -- Periodicals; Economic assistance -- Developing countries -- Periodicals; 330.9
• DOI: 10.1016/j.worlddev.2022.106154
• Languages: English
• ISSNs: 0305-750X

Abstract

Highlights: This study investigates the relationship between the environmental regulations and the export upgrading in China. Cleaner production standards increase the domestic value-added rate (DVAR) of Chinese exports. The nexus of cleaner production regulations' effect and the DVAR varies with firms' markup and TFP. About 43.94% of the promotion of DVAR is contributed by the resource reallocation effect brought by the regulations. Abstract: The effectiveness of environmental regulations and foreign trade competitiveness are important concerns for developing countries that face serious environmental degradation and boost economies by participating in the global market. Taking the cleaner production standards in China as a case study, this paper investigates the relationship between the environmental regulations and export upgrading from the perspective of the domestic value-added rate (DVAR) of exports. We find that cleaner production standards increase Chinese enterprises' DVAR, and the impact varies with firms', industrial and regional heterogeneities. Mechanism analysis shows that the markup percentage of cost and the total factor productivity enhance the positive effect of cleaner production regulations on enterprises' DVAR. Moreover, we also find that 43.94% of the promotion of Chinese enterprises' DVAR is contributed by the resource reallocation effect brought by the cleaner production standards. This study provides empirical evidence that environmental regulations coordinate the development of the ecological environment and the upgrading of Chinese exports, which is also of enlightening significance to other developing countries in the transition to a high-quality development path.