Can Foreign Demand Shocks Reduce the Pollution Emission Intensity? Evidence from Exporters in China

Over the past few decades, globalization has brought the world closer together. While foreign demand shocks deeply influence a country's economy, they also have additional impacts on the environment. In this paper, we exploit firm-level panel data from China ranging from 2000 to 2014 to investigate how foreign demand shocks affect firm-level pollution emission intensity using a Bartik instrument. Our research provides empirical evidence that foreign demand shocks can reduce the pollution emission intensity of firms in China. Mechanism analysis shows that foreign demand shocks decrease the [[EQUATION]] emission intensity by scale effect, technical effect and product-mix effect. In addition, the negative impact of demand shocks on [[EQUATION]] emission intensity is much more obvious in firms that are larger, more capital-intensive and in the clean industries. This paper reveals that firms integrated into the world market can benefit from the positive foreign demand shocks and become much cleaner, even without intentional abatement behaviors or restrictive environmental regulatory policy