Global value chain engagement and air pollution: Evidence from Chinese firms

Abstract

Abstract This paper studies the environmental consequences of firm's participation in the global value chain, based on a unique firm‐level data set from 2000 to 2007 by combining several large and representative databases in China. We propose a novel global value chain (GVC) engagement index that properly characterizes Chinese firm's importing patterns. By estimating fixed‐effects models with a rich set of firm‐level and industry‐level controls, our results robustly show that firm's engagement in GVC leads to decreased SO 2 emission. The identified effects are stronger for firms with domestic ownership, firms of higher pollution intensity, and firms exposed to more stringent place‐based environmental regulation. We further demonstrate that the pollution reduction effects induced by firm's GVC engagement is attributable to lower SO 2 intensity, which is likely to be achieved via the attenuated use of fossil fuels and the increased adoption of abatement devices.