Exporters' environmental premium in a developing country: Firm-level evidence from China

This article reveals the source of exporters' better environmental performance (exporters' environmental premium) for Chinese firms with a model based on heterogeneous firm theory and empirical analysis with a difference-in-differences method based on the Chinese export tax refund reduction in 2004 and comprehensive firm-level environmental survey data. The results show that exporting releases Chinese firms' financing constraints and enables them to upgrade production technologies quickly by applying advanced production technology (capital-embodied technological upgrading) rather than by upgrading abatement technologies, to drive down sulfur dioxide (SO2) intensity and energy intensity. Exporting also reduces a firm's average energy intensity and SO2 intensity by reallocating resources from energy-intensive and polluting production and firms to cleaner ones, that is, the resource reallocation effect. However, Chinese firms cannot expand their production much when trade costs decrease, which makes it difficult for the scale effect to work well.