Does pollution affect exports? Evidence from China

Jie Bai, Larry D. Qiu and Junji Xiao

Journal of Comparative Economics, 2026, vol. 54, issue 2, 598-620

Abstract: This paper examines the effects and mechanisms of air pollution on firm exports using Chinese firm–product data (2000–2007) and thermal inversion as an instrumental variable. We find that a 1% increase in PM2.5 reduces export values by 0.65%, with the 28% pollution increase over our sample period reducing overall exports by 18.30%. We identify two channels through which pollution affects exports: Pollution reduces labor productivity (0.83% decrease per 1% increase in PM2.5) and trigger environmental regulations (lowering exports by 20%–25% based on spatial regression discontinuity estimates). The effects are stronger for low-productivity firms and labor-intensive industries. Our results highlight significant economic costs of air pollution as it reduces international trade.

Keywords: Environment and trade; Air pollution; Firm exports; Productivity; Environmental regulation (search for similar items in EconPapers)
JEL-codes: F14 Q51 Q56 (search for similar items in EconPapers)
Date: 2026
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jcecon:v:54:y:2026:i:2:p:598-620

DOI: 10.1016/j.jce.2026.02.006

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