Do Environmental Regulations Affect the Decision to Export?

Abstract

This paper investigates how a common form of environmental regulation—air quality standards—affects exporters. We develop a simple theoretical model to show how the design of these standards causes (i) some firms to stop exporting and (ii) a reduction in the export volumes of affected continuing exporters. We exploit quasi-experimental variation resulting from the design of Canadian air quality standards to test these predictions empirically. Our estimates confirm our model’s predictions: we find that for the most affected manufacturers, regulation reduced export volumes by 32  percent and increased the likelihood plants stop exporting by 5 percentage points. (JEL D12, F14, F18, Q53, Q58)