Environmental regulation, firm heterogeneity, and intra-industry reallocation

Qian Wang and Linke Zhu

China Economic Review, 2021, vol. 68, issue C

Abstract: We describe a model with firm heterogeneity and endogenous pollution abatement to show how emission intensity and exit/entry selections vary across firms. Using Chinese firm-level emission and production data, we find evidence that low productivity firms have higher emission intensity. The emission intensity of firms with productivity below 10 percentile is 5.26 times larger than firms with productivity above 90 percentile. Combining the Annual Survey of Chinese Industrial Enterprises (CIE) data, and applying a triple-difference research design, we find that firms with high emission intensity or low productivity have a higher probability of exit when exposed to strict environmental policy. We also find the exit of unproductive firms contributes to aggregate productivity and strict environmental policy can help to reduce misallocation.

Keywords: Environmental regulation; Emission intensity; Firm dynamics; Intra-industry reallocation (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:chieco:v:68:y:2021:i:c:s1043951x21000663

DOI: 10.1016/j.chieco.2021.101648

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