40th Annual IAEE International Conference The Effects of Energy Related Environmental Regulation on Exporters' Exiting Behavior: The Evidence from China Dongmei Tu Yao Li Shaoxin Wang

Outline Motivation Related Literature Methodology and Data Analysis and Results Conclusion

Pollution Events All Over the World in 20th Background Pollution Events All Over the World in 20th SA NA Hawaii Africa Europe Asia Oceania Source: Baidu.com

Background 图片来源：世界卫生组织

Motivation Environment Protection Policies Provisional Regulations on Direction Guide to Foreign Investment, 2002 Measures for the Administration of Charging Rates for Pollutant Discharge Fees, 2003 Cleaner Production Promotion Law of the PRC, 2003 Environmental Administrative Penalty Measures, 2010 The Environmental Protection Law of the PRC, 2015 Atmospheric Pollution Prevention and Control Law of the PRC, 2016

Two Control Zones (1) The Air Pollution Prevention and Control Law of the People’s Republic of China (APPCL) was enacted in 1987 and executed in 1988. “Acid Rain Control Areas and SO2 Pollution Control Areas” policy was put into effect in 1998. 155/380 prefecture-cities, 11.4% of territory 40.6% population, 62.4% GDP, 58.9% SO2 emissions in 1995

Two Control Zones (2) Selected Regions: 155 cities. Higher standards of fuel quality for all firms and higher standards of emissions control for pollution-intensive industries in TCZs. Shut down or upgrade high-pollution coal-related production. More environmentally friendly industry structure. Emission fees: Stricter and more efficient.

The Problems Will firms exit export market under the enhanced environment protection? Exports have made important contributions to China’s economic development. Stricter pollution control may raise firms’ cost and hurt their comparative advantage.

Related Literature Impacts on exports Operation cost (Greenstone et al., 2012) Productivity (Hamamoto, 2006) Impact on export volumn (Herring & Poncet, 2014)

Data Source National Bureau of Statistics of China provides: Chinese City Statistical Yearbook (1998-2009) Financial Information Database for Chinese industrial enterprises (1998-2009) State Council’s official document: List of Two Control Zones

Data Cleaning and Problems Abnormal data excluded Matching firms with the same(similar) firm name and the same zip code and sector ID. Only SOEs and private firms with sales greater than 500 million.

Definition of Exporter Status New exporters. If a firm does not export in year t-1 and all years before, but export in year t, we defined the firm as a new exporter. Continuous exporters. If a firm exports in both year t-1 and t, we define the firm as a continuous exporter. Export exit. If a firm export in year t and do not export in year t+1 and t+2, we define that the firm exit the export markets.

Descriptive Analysis Year Number of firms Number of export firms Continuous/Export Intermittent/Export New export/ Export exit/ All firms Export 1999 126577 32846 0.259 0.677 0.033 0.309 0.208 2000 124560 34470 0.277 0.695 0.022 0.247 0.234 2001 137711 38390 0.279 0.635 0.024 0.311 0.172 2002 150214 43258 0.288 0.693 0.019 0.257 0.156 2003 167595 48726 0.291 0.702 0.023 0.258 0.222 2004 240826 74021 0.307 0.475 0.489 0.227 2005 236638 72002 0.304 0.734 0.037 0.220 0.161 2006 263214 75684 0.757 0.020 0.179 2007 296823 76449 0.771 0.191 0.265 2008 367431 85325 0.232 0.619 0.346 --

Methodology Logit model similar to Girma et al.(2003) but with a regulation variable incorporated. Factors Variables Measurement Firm Age lnage year-starting year +（12 - starting month + 1）/12 Firm Scale lnl Ln(Average Annual # of Workers) Total Factor Productivity tfp Calculated based on Olley-Pakes (1996) production function Capital Intensity lnfk_pc Total Fixed Capital/Average Annual # of Workers Wage Level lnw_pc Total Wage Paid/Average Annual # of Workers Entry Cost/Openness incost Output of FDIE in the City/Total Output of the City Foreign Invested fdie Based on the firm type registered with government Pollution Intensity pollution =1 if belongs to pollution intensive industry；=0, otherwise Exporter Type PEX / REX PEX=1 if export/sales >= 90%, REX = 1 if 0<export/sales<90% Environment Regulation TCZ =1 if belongs to Two Control Zones；=0, otherwise

Export Exit Rate for Different Types Enterprises (1999-2007) Export Exit Rate of All Exporters Export Exit Rate for Different Types Enterprises (1999-2007) (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) (13) (14) (15) (16) YEAR ALL TCZ NOT-TCZ POLLUTION NOT-POLLUTION PEX EX 1999 0.208 0.205 0.216 0.201 0.222 0.202 0.175 0.226 0.219 0.254 0.286 0.246 0.171 0.227 2000 0.234 0.239 0.195 0.256 0.199 0.244 0.283 0.304 0.269 0.311 0.277 0.290 2001 0.172 0.164 0.178 0.139 0.194 0.161 0.132 0.188 0.221 0.240 0.204 0.248 0.185 0.236 2002 0.156 0.148 0.158 0.133 0.168 0.146 0.120 0.174 0.232 0.203 2003 0.213 0.212 0.176 0.228 0.238 0.281 0.303 0.285 0.308 0.276 0.267 0.282 2004 0.220 0.252 0.186 0.251 0.275 0.307 0.294 0.310 0.266 2005 0.181 0.129 0.149 0.126 0.191 0.215 0.225 0.183 0.144 0.200 2006 0.179 0.122 0.224 0.138 0.113 0.348 0.415 0.125 0.461 0.327 0.116 0.425 2007 0.265 0.257 0.280 0.296 0.237 0.264 0.332 0.372 0.301 0.392 0.322 0.336

Export Exit Rate for Different Types FDI Enterprises (1999-2007) Export Exit Rate of FDI Export Exit Rate for Different Types FDI Enterprises (1999-2007) (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) (13) (14) (15) (16) YEAR ALL TCZ NOT-TCZ POLLUTION NOT-POLLUTION PEX EX 1999 0.118 0.115 0.127 0.117 0.133 0.112 0.099 0.149 0.168 0.148 0.174 0.145 0.129 0.159 2000 0.132 0.143 0.114 0.126 0.137 0.158 0.059 0.150 0.164 0.184 0.144 2001 0.122 0.092 0.138 0.110 0.095 0.142 0.165 0.172 2002 0.083 0.079 0.082 0.085 0.080 0.078 0.067 0.093 0.121 0.123 0.176 0.104 0.120 2003 0.116 0.108 0.182 0.226 0.167 0.175 2004 0.171 0.173 0.186 0.146 0.191 0.210 0.246 0.244 0.202 0.183 0.221 2005 0.102 0.101 0.106 0.098 0.091 0.111 0.109 2006 0.090 0.081 0.094 0.105 0.124 0.135 0.139 2007 0.235 0.227 0.249 0.260 0.222 0.236 0.306 0.297 0.303 0.294 0.308 0.288 0.325

Regression Analysis - All Exporters FDI NOT-FDI Variable (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) (13) Firm age 0.311 *** 0.472 0.462 0.277 0.278 0.210 0.243 0.323 0.294 0.177 0.154 0.178 Firm size -0.303 -0.367 -0.363 -0.307 -0.290 -0.301 -0.361 -0.351 -0.279 -0.278 TFP -0.099 -0.144 -0.141 -0.233 -0.227 -0.249 -0.256 -0.270 -0.221 -0.235 Capital intensity -0.007 -0.009 * -0.010 -0.025 ** -0.042 -0.014 -0.027 -0.006 -0.023 Wage level -0.266 -0.440 -0.409 -0.179 -0.176 -0.098 -0.180 -0.076 -0.087 -0.101 -0.107 export cost -0.610 -0.229 -0.222 -0.181 -0.217 -0.223 -0.285 -0.286 -0.016 -0.018 TCZ -0.060 0.025 -0.068 -0.030 -0.247 -0.281 -0.254 0.030 0.012 0.070 FDIE -0.479 FDIE*TCZ -0.211 PEX -0.558 -0.523 -0.499 PEX*TCZ 0.091 0.161 0.084 Pollution 1.692 1.818 1.522 Pollution*TCZ -0.124 0.038 -0.154 Year dummies no Yes Industry & Province dummies Observations 258727 257522 76356 181166 Log likelihood -125423 -122745 -122141 -118618 -118615 -117911 -118205 -118611 -28572 -28518 -88991 -88735 -88986

Robustness Check Difference in difference estimations. Randomly sampling. Clustered standard errors. Propensity Score matched estimation.

Conclusions On average, the stricter environmental regulation has not significantly caused more export exit in TCZs than in non-TCZs. The export exiting behavior of pure exporters, especially domestic pure exporters show evidence of pollution haven hypothesis. However foreign invested exporters show evidence for Pollution Halo hypothesis.

Thank You！