The determinants of pollution levels: Firm-level evidence from Chinese manufacturing

- We examine factors affecting pollution intensity in Chinese manufacturing, using a large, unique, firm-level dataset.
- Compared to state-owned enterprises, foreign firms and domestic public-listed firms pollute less.
- Local protection leads to higher pollution intensity.
- Better property rights protection is negatively correlated with pollutant discharge over and beyond the national standards.

Using a large, unique, firm-level dataset from the Chinese manufacturing sector, we study important factors that are related to emission intensity for three pollutants in China - sulfur dioxide, wastewater, and soot. Our main findings are as follows: (1) compared to state-owned enterprises (SOEs), both foreign-owned firms and domestic public-listed firms exhibit less intensive pollutant emissions; (2) firms in regions with less local protection have lower pollution intensity; (3) better property rights protection is negatively correlated with pollutant discharge over and beyond the national standards; and (4) larger firms, firms in industries that export more, and firms with more educated employees pollute less. These results suggest that China should not target foreign firms more harshly in its effort to reduce industrial pollution. Better institutions in the form of more effective law enforcement and lower entry barriers across regional markets are also means of curbing China's pressing environmental problems during its current stage of economic development.