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Going Green in China: Firms’ Responses to Stricter Environmental Regulations

Haichao Fan, Joshua Graff Zivin, Zonglai Kou, Xueyue Liu and Huanhuan Wang

No 26540, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper examines the effect of stringent environmental regulations on firms' environmental practices, economic performance, and environmental innovation. Reducing COD levels by 10% relative to 2005 levels is an aim of the Chinese 11th Five-Year Plan. Using a difference-in-differences framework based on a comprehensive firm-level dataset, we find that more stringent environmental regulations faced by firms are positively associated with a greater probability of reducing COD emissions; also, there exists an evident heterogeneous effect across industries with different pollution intensities. Stricter environmental regulations also account for the sharp decline in firms' profits, capital, and labor. After executing a complete chain of tests of the underlying mechanisms, we find that firms rely more on recycling and abatement investment than on innovations when meeting environmental requirements.

JEL-codes: D22 K32 O31 Q53 (search for similar items in EconPapers)
Date: 2019-12
New Economics Papers: this item is included in nep-cna, nep-env, nep-tid and nep-tra
Note: EEE PE PR
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