Air pollution and firms' export product quality: Evidence from China

Abstract This study provides causal estimates of the effect of air pollution on firms' export product quality, based on China's experience. Using thermal inversions as an instrument, a 1% increase in PM2.5 is associated with a 0.25% decrease in export product quality. A series of tests indicates the robustness of our main result. Heterogeneity analysis reveals that the negative impact of air pollution on export product quality is only significant among regions with high levels of air pollution. In addition, we find that air pollution also reduces firms' export sales, share and probability. Our study provides original evidence for the relationship between air pollution and firms' export product quality, offering a unique perspective for countries to enhance export competitiveness.