Essays on Environmental Economics: How do Chinese Firms Respond to Regulatory Shocks?


Student thesis: Doctoral Thesis

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Award date2 Aug 2022


Environmental pollution and greenhouse gas emissions have long been the common concerns for humankind. The development of industry and economy without doing harm to the environment is increasingly a challenge for scholars and policymakers. The environmental policy tools are generally considered crucial to environmental management. And industrial policy sometimes may have unintended environmental negative externality such as excessive pollution emissions. The cost of these policies is not yet fully explored. This thesis aims to assess how external environmental regulation and large-sale state-owned enterprises (SOEs) reform affect company’s industrial activity and pollution emissions and the opportunity costs incurred by the environmental regulation.

Environmental information disclosure (EID) programme is one of commonly used environmental policy tools, however, the effect of this programme on firm’s production is still unclear. Chapter 2 employs the recently developed conditional nonparametric frontier approach to assess the impact of environmental expenditures associated with EID on the production of China’s listed manufacturing firms. An inverted-U-shaped relationship is found between environmental expenditures and firms’ productive efficiency. This finding may explain why traditional view of negative impacts of environmental regulation on production and the positive impacts of Porter-type innovation coexist. The study also finds that continuous environmental investments beyond the threshold can narrow the efficiency gap between firms in the same industry, bringing about additional societal spillover impacts.

In addition, global warming has received more and more attention from both inside and outside academia. Chapter 3 analyzes the impacts of carbon intensity control introduced by China’s National Plan on firm competitiveness. It finds that the exposure to mandate significantly decreases firm’s energy intensity, but does not affect firm competitiveness measured by productivity. The study shows that exposure to carbon intensity control causes firms to increase their low-carbon patents, with no crowding-out effect on non-low-carbon innovation. Low-carbon innovation induced by the mandate increases firm outputs by expanding the size of labour inputs and fixed assets. The mandated intensity-based policy thus can be an effective instrument for mitigating the greenhouse gases without harming firm competitiveness.

On the other hand, government always introduce a series of regulatory policies focusing on developing the industry or increasing enterprise’s output, which may bring about some unexpected environmental consequences. Chapter 4 investigates the effect of privatization on the pollution emissions of companies by exploiting the ownership reforms of state-owned enterprises in China. The findings reveal a significant increase of corporate SO2 and COD emissions as a result of privatization. The effect varies largely across regions and differs by the ownership structure. Privatized SOEs undergo production expansion, major changes in their corporate energy input structures and tend to make a significant strategic shift in their approach to pollution mitigation, paying less regard to environmental innovation in production, opting rather to put more effort into end-of-pipe treatments. These results suggest that corporate ownership change can largely influence firm’s environmental behavior.

Last, these regulatory policies inevitably involve some costs. Chapter 5 estimates the opportunity cost arising from environmental regulations in China’s industrial sector. The technical change and input change determines the change of opportunity cost. The change of opportunity cost is marginal at the national level, as the positive effect of technical change is canceled out by the negative impact of input change on opportunity cost. The mediation model shows that environmental regulation has a significantly positive direct effect and a significantly negative indirect effect through foreign direct investment on opportunity cost.

    Research areas

  • environmental regulation, corporate ownership, industrial activity, pollution emissions