Exporting and pollution abatement expenditure: Evidence from firm-level data

The relevance of analyzing whether exporting firms engage in greater pollution abatement cannot be overemphasized. For instance, the question relates to the possibility of export promotion policies being environmentally beneficial. Thus, the issue is especially relevant for developing countries typically characterized by weak enforcement of environmental regulation. However, despite the extensive literature assessing the environmental consequences of aggregate trade, the evidence from firm-level trade is relatively scarce and skewed toward developed countries. Accordingly, we employ cross-sectional data across Indonesian firms to assess the causal effect of exporting on abatement behavior. Due to concerns over non-random selection into exporting, we also resort to a number of novel identification strategies. Two of the approaches are proposed by Millimet and Tchernis (2013) and entail either minimizing or correcting for selection bias. The remaining methods, attributable to Lewbel (2012) and Klein and Vella (2009), rely on higher moments of the data to obtain exclusion restrictions. While we largely find exporting to encourage pollution abatement, the estimated impacts are more pronounced after accounting for the endogeneity of exporting status.