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How air pollution lowers the domestic value-added ratio in exports: an empirical study of China

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Abstract

This paper analyzes the theoretical mechanism and transmission channel for the impact of air pollution on firms’ domestic value-added ratio (DVAR) in exports. Based on the matched Chinese Industrial Enterprises Database and China Customs Enterprise Database, the DVAR in exports is measured, and this mechanism is empirically tested with standard measurement methods. The study concludes that air pollution is not conducive to raising the DVAR during the sample period. This conclusion remains robust to many issues, such as endogeneity, measurement error, extension of the sample interval, substitution of the air pollution index, and policy changes. The impact of air pollution on the DVAR varies by the type of firm ownership, size, and age, as well as the size and location of the city. In addition, the negative impact of air pollution on the DVAR grows with increases in the PM2.5 concentration. The growing factor prices of domestic intermediate goods and the falling productivity due to air pollution are important transmission channels for the negative impact of air pollution on the DVAR. In order for firms to open up on all fronts through quality trade development, we recommend the prevention and control of air pollution, fueling internal driving forces for firms’ independent innovation, and encouraging firms to target the medium- and high-end markets.

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Data Availability

The data is available from authors’ upon request.

Notes

  1. In behavioral economics, loss aversion means enterprises find that loss is more unbearable when profits and losses are equal. Thus, intermediate goods suppliers adopt corresponding measures to maintain the original profits lost due to rising production costs due to environmental regulation.

  2. The investment of foreign intermediate factors imported by enterprises is converted to renminbi based on the exchange rate of the RMB against the US dollar that year.

  3. In accordance with the Notice of the State Council on Adjustment Standards for Classifying Cities (Guofa no. 15, 2014), city sizes are defined as: cities whose permanent population is below 500,000 are small cities; cities whose permanent population is between 500,000 and 1 million are medium-size cities; cities whose population is between 1 million and 5 million are large cities.

  4. The eastern region consists of Beijing, Tianjin, Hebei, Liaoning, Shanghai, Jiangsu, Zhejiang, Fujian, Shandong, Guangdong, and Hainan. Other cities are in the central and western regions.

  5. According to the Environmental Quality Test Standard, air quality is high when the daily average concentration of PM2.5 is less than 35 μg/m3; and air quality is low when the daily average concentration of PM2.5 is higher than 35 μg/m3.

  6. The samples of 2010 in China Industrial Enterprise Database are deleted due to serious mistakes and losses.

  7. Municipalities directly under the central government: Beijing, Tianjin, Shanghai, and Chongqing; provincial cities: Harbin, Changchun, Shenyang, Dalian, Jinan, Qingdao, Nanjing, Hangzhou, Ningbo, Xiamen, Wuhan, Guangzhou, Shenzhen, Chengdu, and Xi’an.

  8. Positive list refers to the list of market access subjects, scope and fields allowed by the government.

  9. The Guiding Opinions on Promoting the Healthy Development of Small- and Medium-sized Enterprises issued by the General Offices of the CCP Central Committee and the State Council in 2019 stipulates “we should pursue supply-side structural reform as our main task, center on improving the quality and returns of development, and follow the principle of competitive neutrality to create fair and convenient business environment for tapping the vitality and developmental potential of SMEs.” The competition principle means all enterprises, public or private, large or small, are subject to the same statutes and abide by the same market rules in a socialist economy.

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Acknowledgements

We would like to thank our Editor and anonymous reviewer(s) for their valuable comments.

Funding

This work is supported by the Key Program of National Natural Science Foundation of China (71934005), the General Program of National Natural Science Foundation of China (71773051), the Major Program of the National Social Science Foundation of China (20ZDA102), the Youth Program of National Social Science Foundation of China (18CJY019), The Beijing Natural Science Foundation (9192015), the Youth Program of National Social Science Foundation of Jiangsu Province (17EYC005), the Fundamental Research Funds for the Central Universities (SKCX2020002), and the Priority Academic Program Development of Jiangsu Higher Education Institutions (PAPD).

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Authors and Affiliations

  1. School of Economics and Management, Nanjing Agricultural University, No.1 Weigang Road, Nanjing, 210095, People’s Republic of China

    Lan Yu, Ruiyao Ying & Bingbing Zhang

  2. China Center for Food Security Studies, Nanjing Agricultural University, Nanjing, 210095, People’s Republic of China

    Lan Yu, Ruiyao Ying & Bingbing Zhang

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  1. Lan Yu
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  2. Ruiyao Ying
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Contributions

Zhang and Ying conceived the idea and provided the data; Yu conducted the analyses; all authors contributed to the writing and revisions. All authors have given approval to the final version of the manuscript.

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Correspondence to Bingbing Zhang.

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Yu, L., Ying, R. & Zhang, B. How air pollution lowers the domestic value-added ratio in exports: an empirical study of China. Environ Sci Pollut Res 28, 48123–48140 (2021). https://doi.org/10.1007/s11356-021-14120-0

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