Global Value Chain Engagement and Air Pollution: Evidence From Chinese Firms

Abstract

This paper studies the environmental consequences of firm’s participation in the global value chain, based on a unique firm-level dataset from 2000-2007 by combining several large and representative databases in China. We propose a novel GVC engagement index that properly characterizes Chinese firm’s importing patterns. Besides the baseline specifications, we perform a difference-in-difference analysis taking China’s WTO accession as an exogenous shock to firm’s GVC involvement. Results robustly show that firm’s engagement in GVC leads to decreased emission of SO2. The identified effects are stronger for firms with domestic ownership and firms under more stringent place-based environmental regulation. We further demonstrate that the pollution reduction effects induced by firm’s GVC engagement is attributable to lower SO2 intensity, which is most likely to be achieved via the attenuated use of fossil fuels and the increased adoption of abatement devices.