Environmental Centralizing and Firm Productivity: Evidence from China’s Vertical Environmental Reforms

Abstract

This article investigates the impact of vertical environmental reforms—a series of environmental centralizing reforms in China on total factor productivity (TFP) of Chinese manufacturing firms during 1998–2007, using manually collected data on the reforms. After the reforms, firms’ TFP in polluting industries of the reformed districts/counties in a city decreased by 4.4%; however, the impact on state-owned enterprises is not significant. Mechanism analysis shows that the proportion of polluting industries in the economy and pollutant emissions decreased after the reforms, implying increased stringency of environmental regulation, while firm innovation has not significantly been affected.