Does pollution affect exports? Evidence from China

Jie BAI; Larry D. QIU; Junji XIAO

doi:10.1016/j.jce.2026.02.006

Does pollution affect exports? Evidence from China

Jie BAI
, Larry D. QIU^*
, Junji XIAO

^*Corresponding author for this work

Department of Economics

Research output: Journal Publications › Journal Article (refereed) › peer-review

Abstract

This paper examines the effects and mechanisms of air pollution on firm exports using Chinese firm–product data (2000–2007) and thermal inversion as an instrumental variable. We find that a 1% increase in PM_2.5 reduces export values by 0.65%, with the 28% pollution increase over our sample period reducing overall exports by 18.30%. We identify two channels through which pollution affects exports: Pollution reduces labor productivity (0.83% decrease per 1% increase in PM_2.5) and trigger environmental regulations (lowering exports by 20%–25% based on spatial regression discontinuity estimates). The effects are stronger for low-productivity firms and labor-intensive industries. Our results highlight significant economic costs of air pollution as it reduces international trade.

Original language	English
Number of pages	23
Journal	Journal of Comparative Economics
DOIs	https://doi.org/10.1016/j.jce.2026.02.006
Publication status	E-pub ahead of print - 12 Mar 2026

Bibliographical note

We benefit presentations at Asia-Pacific Trade Seminars (Tokyo, 2022), International Symposium on Trade and Green Environment (Kobe, 2023), Australia Trade Workshop (Cairns, 2023), The 11th Biennial Hong Kong Economic Association Meetings (Hong Kong, 2023), Guangdong University of Foreign Studies (Guangzhou, 2023), Seminar at Renmin University (Beijing, 2023), The 1st Lingnan University–University of Nottingham (UK) Joint Workshop on International Trade and Economic Development (Hong Kong, 2023), Nanjing University International Trade Workshop (Nanjing, 2023), the 11th Biennial Hong Kong Economic Association Meetings (Hong Kong, 2023), Guangdong University of Foreign Studies.

Publisher Copyright:
© 2026 Association for Comparative Economic Studies.

Keywords

Environment and trade
Air pollution
Firm exports
Productivity
Environmental regulation

Access to Document

10.1016/j.jce.2026.02.006

Cite this

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title = "Does pollution affect exports? Evidence from China",

abstract = "This paper examines the effects and mechanisms of air pollution on firm exports using Chinese firm–product data (2000–2007) and thermal inversion as an instrumental variable. We find that a 1\% increase in PM2.5 reduces export values by 0.65\%, with the 28\% pollution increase over our sample period reducing overall exports by 18.30\%. We identify two channels through which pollution affects exports: Pollution reduces labor productivity (0.83\% decrease per 1\% increase in PM2.5) and trigger environmental regulations (lowering exports by 20\%–25\% based on spatial regression discontinuity estimates). The effects are stronger for low-productivity firms and labor-intensive industries. Our results highlight significant economic costs of air pollution as it reduces international trade.",

keywords = "Environment and trade, Air pollution, Firm exports, Productivity, Environmental regulation",

author = "Jie BAI and QIU, \{Larry D.\} and Junji XIAO",

note = "We benefit presentations at Asia-Pacific Trade Seminars (Tokyo, 2022), International Symposium on Trade and Green Environment (Kobe, 2023), Australia Trade Workshop (Cairns, 2023), The 11th Biennial Hong Kong Economic Association Meetings (Hong Kong, 2023), Guangdong University of Foreign Studies (Guangzhou, 2023), Seminar at Renmin University (Beijing, 2023), The 1st Lingnan University–University of Nottingham (UK) Joint Workshop on International Trade and Economic Development (Hong Kong, 2023), Nanjing University International Trade Workshop (Nanjing, 2023), the 11th Biennial Hong Kong Economic Association Meetings (Hong Kong, 2023), Guangdong University of Foreign Studies. Publisher Copyright: {\textcopyright} 2026 Association for Comparative Economic Studies.",

year = "2026",

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doi = "10.1016/j.jce.2026.02.006",

language = "English",

journal = "Journal of Comparative Economics",

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AU - QIU, Larry D.

AU - XIAO, Junji

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PY - 2026/3/12

Y1 - 2026/3/12

N2 - This paper examines the effects and mechanisms of air pollution on firm exports using Chinese firm–product data (2000–2007) and thermal inversion as an instrumental variable. We find that a 1% increase in PM2.5 reduces export values by 0.65%, with the 28% pollution increase over our sample period reducing overall exports by 18.30%. We identify two channels through which pollution affects exports: Pollution reduces labor productivity (0.83% decrease per 1% increase in PM2.5) and trigger environmental regulations (lowering exports by 20%–25% based on spatial regression discontinuity estimates). The effects are stronger for low-productivity firms and labor-intensive industries. Our results highlight significant economic costs of air pollution as it reduces international trade.

AB - This paper examines the effects and mechanisms of air pollution on firm exports using Chinese firm–product data (2000–2007) and thermal inversion as an instrumental variable. We find that a 1% increase in PM2.5 reduces export values by 0.65%, with the 28% pollution increase over our sample period reducing overall exports by 18.30%. We identify two channels through which pollution affects exports: Pollution reduces labor productivity (0.83% decrease per 1% increase in PM2.5) and trigger environmental regulations (lowering exports by 20%–25% based on spatial regression discontinuity estimates). The effects are stronger for low-productivity firms and labor-intensive industries. Our results highlight significant economic costs of air pollution as it reduces international trade.

KW - Environment and trade

KW - Air pollution

KW - Firm exports

KW - Productivity

KW - Environmental regulation

UR - https://www.scopus.com/pages/publications/105032424896

U2 - 10.1016/j.jce.2026.02.006

DO - 10.1016/j.jce.2026.02.006

M3 - Journal Article (refereed)

SN - 0147-5967

JO - Journal of Comparative Economics

JF - Journal of Comparative Economics

ER -

Does pollution affect exports? Evidence from China

Abstract

Bibliographical note

Keywords

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