1. Introduction
Over the long term, China has relied on low-cost factors, imitation technology, and low-end international target markets to form an export-driven economic growth model, achieving a fast expansion of export scale and rapid development of the national economy [
1]. However, such a growth model, which relies on excessive consumption of resources and disregards environmental costs, is not conducive to sustainable and healthy economic development and is also prone to industrial development into low-end locking and an inability to break even. Meanwhile, strengthening environmental protection and achieving emission reduction targets have become the consensus of countries around the world from a global perspective [
2]. In this context, the Chinese government proposes to accelerate the transformation of the economic growth model and, on the one hand, properly handle the relationship between economic development and environmental protection and play the role of environmental protection as a precursor to and force for the transformation of economic development. On the other hand, it will rely on firm innovation and technological progress to improve the efficiency of resource utilization, promote industrial transformation and upgrading, and move to the middle and high end of the global value chain. Thus, an urgent question that needs to be answered is whether environmental protection and technological progress can reach a win-win solution.
Theoretically, according to Porter’s hypothesis, moderate environmental regulation can induce firms to innovate, thus offsetting the rising costs of environmental policies [
3]. In reality, however, strengthening environmental protection will inevitably have a significant impact on the existing industrial system and business production and operations. Accordingly, a large amount of literature has examined the effect of environmental regulation on firms’ technology levels to verify the Porter hypothesis. The first type of literature findings supports the Porter hypothesis. Li et al. [
4] found that environmental regulation significantly improves firm performance with a mediating role of technological innovation based on 2016–2020 listed companies’ data from the Yangtze River Delta region of China. Zhong et al. [
5] found that environmental regulation promotes industry eco-efficiency based on 36 components of industry-level data in China from 2009–2018, using industry-level environmental legislation as a proxy variable for environmental regulation. Sun et al. [
6] found that environmental regulations promote domestic value being added to Chinese firms’ exports through resource reallocation effects. Franco and Marin [
7] found that the environmental regulation of energy tax significantly contributed to the increase of industry productivity by examining the impact of the energy tax on productivity based on industry-level data in European countries. In addition, part of the literature examines the impact of environmental regulations on firm performance from the perspective of environmental taxes [
8], carbon trade taxes [
9], and carbon emissions trading markets [
10,
11], also supporting the Porter hypothesis. The second type of literature findings are unable to support the Porter hypothesis. Cai and Ye [
12] found that environmental regulations significantly inhibit the total factor productivity of firms, based on a quasi-natural experiment with new environmental legislation in China. Dechezleprêtre and Sato [
13] argue that environmental regulations may adversely affect firms’ international trade and productivity in the short term. Eriksson [
14] found that the implementation of environmental regulations increased firms’ abatement costs and weakened their competitiveness in the product market. Combined with the above literature, even though there has been a considerable amount of research related to environmental regulations and firms’ technological progress, the findings are still divergent, and fewer studies have been conducted on market-incentive-based environmental regulations.
In the area of international economics, export sophistication, which reflects the technological content of a country’s exports, is widely used to measure the level of technology in a country [
15,
16]. It has been shown to play an important role in driving a country’s economic growth [
17,
18,
19]. Some studies have found that the export sophistication of China has increased rapidly since its accession to the WTO, using OECD developed countries as a comparator, and its export competitiveness has improved significantly [
20]. However, some scholars argue that the higher export sophistication in China is due to the relatively large share of processing trade [
21], and that the export sophistication has not increased significantly after excluding the contribution of processing trade [
22]. In addition, some literature focuses on the factors influencing export sophistication, ranging from intermediate goods trade [
23], value chains and supply chains [
24], FDI [
25,
26], human capital [
27], financial development [
28], and minimum wage [
29], investigating the impact on export sophistication. However, a common feature of the above literature is that the studies are mainly at the regional or industry level, ignoring the effects of firm heterogeneity on export sophistication, while a few pieces of literature have examined the impact on firm export performance from the perspective of environmental costs.
Based on this, this paper takes an entry point with China’s sewage charges standard reform and adopts a staggered DID model to examine the effect of environmental regulations on the firms’ export sophistication and its mechanism by using a sample of Chinese manufacturing firms from 2004 to 2013. The possible marginal contributions of this paper are as follows: first, previous literature has mainly examined the effect of the SCSR on economic green growth [
30] and industrial green development [
31] at the macro level; this paper is the first to examine the effect of the SCSR on firms’ export performance from the micro firm perspective and further investigates the mechanisms and firm heterogeneity of the effect, which provides new empirical evidence for the assessment of the policy effects of the SCSR. Second, the existing literature has not reached a unified conclusion on the impact of environmental regulations on firm performance. This paper uses the quasi-natural experiment of China’s SCSR to better address the endogeneity issue by adopting a staggered DID model, and the findings show that the SCSR improves firms’ export sophistication through a mechanism of innovation compensation, which supports Porter’s hypothesis at the micro level and complements the literature in this area. Third, this paper examines the impact of environmental regulations on export sophistication at the firm level, while the existing literature mainly focuses on the macro level, and findings indicate that there is heterogeneity in the impact of environmental regulations on firms’ export sophistication in terms of firm trade patterns, firm size, and firm ownership, which provides a new perspective for future research on export sophistication. Finally, the findings of this paper demonstrate that market-incentivized environmental regulation represented by the SCSR can achieve a win-win situation for both environmental protection and technological progress, which provides policy insights for China and other developing countries to formulate and implement environmental protection policies appropriately.
The remainder of this paper is as follows:
Section 2 introduces the policy background and presents the theoretical hypotheses;
Section 3 provides the research design, introducing the model setting, data sources, and variable selection;
Section 4 provides the empirical analysis, including the basic regression, parallel trend test, and robustness test;
Section 5 provides further analysis, analyzing firm heterogeneity and the influence mechanism; and finally, the conclusion and policy recommendations end the paper.
6. Conclusions and Policy Implications
6.1. Conclusions
Based on a quasi-natural experiment of the sewage charges standard reform (SCSR), this paper examines the impact of environmental regulation on firms’ export sophistication by adopting a staggered difference-in-difference model using matched data from the Chinese Annual Survey of Industry Firms (CASIF) and Chinese Customs Trade database (CCTD) from 2004–2013. The following conclusions are drawn: first, the environmental regulation policy of the SCSR can significantly promote the firms’ export sophistication, which remains robust after a series of robustness tests; second, the impact of the SCSR on firms’ export sophistication is heterogeneous, and the promotion effect of the SCSR on firms’ export sophistication is mainly reflected in firms that import and export simultaneously, large scale firms, and local firms; third, the SCSR promotes firms’ export sophistication mainly through an innovation compensation effect and a product switching effect. The findings of this paper provide new empirical evidence for the assessment of the policy effects of the SCSR and support Porter’s hypothesis at the micro level. In addition, these findings have implications for governments of developing countries to formulate and implement environmental protection policies appropriately.
6.2. Policy Implications
Based on the conclusions above, the policy recommendations proposed here are as follows:
First, keep strengthening environmental regulation policy and environmental law enforcement. Environmental regulation policies, in general, have a facilitating effect on the technical complexity of polluting firms’ exports and do not lead to a decline in the competitiveness of China’s product exports, so reasonable environmental regulation can achieve ecological protection and enhance the competitiveness of firm’ exports. At the same time, the implementation of environmental regulation policies should be strengthened. Some regions sacrifice the environment to achieve high GDP targets, and although the state has introduced environmental regulation policies to solve the externalities of environmental pollution, localities will issue subsidies to polluting firms to compensate for the increased costs brought about by the strengthening of environmental regulations, which greatly reduces the role of environmental regulation policies. Therefore, after the change from “fee” to “tax”, the implementation of the environmental protection tax needs to be strengthened, and the environmental protection tax rate can be increased appropriately.
Second, improve the supporting measures to promote environmental policies. The conclusions of this paper point out that environmental regulation mainly promotes the firms’ export sophistication through mechanisms of innovation compensation effect and product conversion effect, but not all firms can achieve green technological innovation and product production conversion in the short term. Therefore, local governments need to introduce corresponding supporting measures while strengthening the intensity of environmental regulations, including the implementation of financial support policies to alleviate the financial constraints of firm innovation and the implementation of innovation guidance policies to provide technological innovation direction for firms and reduce innovation uncertainty.
Third, the environmental regulation policy should be differentiated for different firms. Firms with different business models, asset sizes, and ownership structures face different costs from environmental regulation and have different options for dealing with environmental regulation. Therefore, the formulation and implementation of environmental regulations should pay attention to the specificity of firms and industries; formulate targeted, differentiated, and hierarchical environmental regulation policies; and promote the implementation of environmental protection tax while supporting diversified environmental regulation policies so as to achieve the win-win goal of environmental protection and technological progress.