Export Liberalization and Water Pollution: Firm-Level Evidence from China

Abstract

This paper investigates the effect of export liberalization on firm-level water pollution. With data on Chinese firm-level water pollution around China's accession to the World Trade Organization, we identify a negative causal effect of export liberalization on firm-level water-pollution intensity using an exogenous shock to trade policy uncertainty. Further analyses reveal a "competition effect" that decreases water-pollution intensity and a "specialization effect" that increases water-pollution intensity. The competition effect dominates for non-exporting firms while the specialization effect exists only when firms export. The effect of export liberalization on firm-level aggregate water pollution also depends on firm's export status.