The effect of ISO 14001 on environmental regulatory compliance in China

- ISO 14001 certification in China is driven by customer demand for high environmental standards.
- ISO 14001 certification improves compliance with environmental regulations in China.
- The positive effect of certification persists after implementing appropriate controls for endogeneity.

Certification to the ISO 14001 environmental management standard is analyzed using data drawn from a survey of manufacturing firms in China. The analysis proceeds by first identifying predictors of ISO 14001 certification and then estimating the relationship between ISO 14001 certification and compliance with environmental regulations. Potential endogeneity between ISO 14001 certification and regulatory compliance is addressed by modeling certification and compliance simultaneously using the SURBP estimator. Results indicate that ISO 14001 certification increases compliance with environmental regulations, and this effect persists after implementing the appropriate controls for endogeneity.