Do environmental regulations cause enterprises to exit from market? Quasi-natural experiments based on China’s Cleaner Production Standards

Bao-Chang Xu, Chang-Wei Pan, Yi-Han Sun and Meng Zhang

Economic Research-Ekonomska Istraživanja, 2023, vol. 36, issue 2, 2179093

Abstract: Taking the implementation of Cleaner Production Standards at the industry level in China as a quasi-natural experiment, the impact of these standards on enterprises' exit behavior was empirically analyzed by using the Difference-in-Differences method. Results suggested that the implementation of Cleaner Production Standards reduced the probability of enterprises exiting the market. A parallel trend test, Propensity Score Matching (PSM), and the exclusion of other policy factors were then used to verify the robustness of this finding. The impact mechanism test showed that implementation of the standards reduced the probability of enterprises exiting the market through improving total factor productivity and promoting enterprise product innovation. The heterogeneity test revealed that, on the one hand, the implementation of Cleaner Production Standards can reduce the probability of R&D intensive industries and medium-sized enterprises exiting the market, and protect innovative and moderately sized enterprises. On the other hand, the implementation of Cleaner Production Standards can increase the probability of state-owned enterprises and small-scale enterprises exiting the market and optimize the allocation of resources among enterprises. This paper has important implications for China's future approach to environmental policy formulation as well as the optimization of domestic enterprise structure.

Date: 2023
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DOI: 10.1080/1331677X.2023.2179093

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