Environmental regulation and firms’ extensive margin decisions

Shuo Li and Min Wang

Journal of Environmental Economics and Management, 2025, vol. 133, issue C

Abstract: The paper explores the impacts of environmental regulation on Chinese firms’ extensive margin decisions and resulting changes in market structure and competitiveness. We find that environmental regulation significantly deters firm entry in pollution-intensive industries, while its impact on firm exit is negligible, revealing an asymmetric impact at the extensive margin. The theoretical model and empirical evidence suggest that regulation raises average productivity by selecting against low-productivity entrants and allowing high-productivity firms to enter at smaller scales. We also test for spatial spillovers and find no substantial firm relocation to unregulated areas. These results highlight market selection as a key mechanism through which environmental regulation reshapes industrial dynamics.

Keywords: Environmental regulation; Firm entry; Spatial spillover; Market selection (search for similar items in EconPapers)
JEL-codes: L51 O44 Q52 Q58 R38 (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0095069625001081
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jeeman:v:133:y:2025:i:c:s0095069625001081

DOI: 10.1016/j.jeem.2025.103224

Access Statistics for this article

Journal of Environmental Economics and Management is currently edited by M.A. Cole, A. Lange, D.J. Phaneuf, D. Popp, M.J. Roberts, M.D. Smith, C. Timmins, Q. Weninger and A.J. Yates

More articles in Journal of Environmental Economics and Management from Elsevier
Bibliographic data for series maintained by Catherine Liu ().