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Environmental standards, trade and innovation: evidence from a natural experiment

Published online by Cambridge University Press:  19 April 2017

Pavel Chakraborty
Pavel Chakraborty*
Affiliation:
Centre for Trade and Development, School of International Studies, Jawaharlal Nehru University, New Delhi – 110067, India. Tel: +91 9821778098. E-mail: pavelchakraborty@mail.jnu.ac.in
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Abstract

Exploiting a natural experiment involving the imposition of a technical regulation by Germany on Indian leather and textile industries in 1994, a firm-level data set is used to study the trade, adaptation and discontinuity effects and how they vary by firm size. It is found that: (a) regulation significantly increases the export revenues of a firm through use of new technology and high-quality imported raw materials – indicating a possible signalling effect; (b) this gain is concentrated only on the upper half of the firm size distribution, i.e., in the 3rd and 4th quartiles; (c) use of imported raw materials significantly explains low exit probabilities of a firm; and (d) there is evidence of a sorting effect – regulation significantly affecting the operation of small firms.

Type
Research Article
Information
Environment and Development Economics , Volume 22 , Issue 4 , August 2017 , pp. 414 - 446
Copyright
Copyright © Cambridge University Press 2017 

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