Emissions Reduction Target Plan and Export Product Quality: Evidence from China’s 11th Five-Year Plan

Abstract

Determining how environmental policy affects export competitiveness is essential for achieving win–win objectives in environmental governance and trade development. We examine whether and how China’s emissions reduction policy declines the firm’s export product quality during the 11th five-year plan via the difference-in-difference-in-difference method. The main findings of this paper are as follows: (i) Compared with less polluting industries, the export production quality declines 5.74% and 3.31%, respectively, as the pollution reduction targets of SO2 and chemical oxygen demand (COD) are set 1 unit higher in more polluting industries. (ii) The negative effect is greater in Western regions as well as state-owned firms. (iii) Local officials facing promotion pressure are more incentivized to raise emissions reduction goals, as well as greater increasing emissions abatement costs, thus leading to greater declines in export quality. However, the innovation compensation effect still remains. (iv) The negative effects can be mitigated through product switching that contributes to resource allocation within firms towards their core products, or executing the first-mover advantage in response to the emissions reduction plan.