How Do Chinese Exporting Firms Respond to Environment‐related Notifications? A Green Innovation Perspective

• Published date: 01 September 2024
• Author: Wen Chen,Yinzi Fan
• Date: 01 September 2024
• DOI: http://doi.org/10.1111/cwe.12546

©2024 Institute of World Economics and Politics, Chinese Academy of Social Sciences

China & World Economy / 1–27, Vol. 32, No. 5, 2024 1

How Do Chinese Exporting Firms Respond to

Environment-related Notif‌i cations?

A Green Innovation Perspective

Wen Chen, Yinzi Fan*

Abstract

Environment-related notifications play an important role in the coordinated development

of trade and environment protection. In this paper, we examine how Chinese exporting

enterprises responded to environment-related notifications implemented by the US through

green innovation practices. These notifications significantly encouraged exporting firms to

increase green innovation, as evidenced particularly by the number of green utility model

patents granted. This effect was most pronounced in non-foreign-invested enterprises, high-

total-factor-productivity firms, technology-intensive industries, and nongreen industries.

These notifications also increased the probability of enterprises exiting the market while

reducing the probability of new enterprises entering it. The innovation motivation of

surviving firms was higher than that of the new entrants. Our analysis also suggests that

environment-related notifications had a crowding-out effect on other innovation rather

than a leverage effect. This study offers important empirical evidence that helps enterprises

to respond to green non-tariff measures effectively, enrich the existing literature, and

provide practical guidance for both policymaking and corporate development.

Keywords: difference-in-differences, environment-related notification, green innovation,

trade and environment

JEL codes: F13, F14, O33

I. Introduction

International trade has facilitated international economic cooperation and development

in recent decades. However, it has also led to pollution, resource depletion, and

ecological damage. It is therefore important for all nations to achieve sustainable

development while balancing trade and environmental concerns (Copeland and Taylor,

*Wen Chen (corresponding author), Professor, School of Economics, Xiamen University, China. Email:

wendych@xmu.edu.cn; Yinzi Fan, PhD Candidate, School of Economics, Xiamen University, China. Email:

458025317@qq.com. The authors are grateful for support from the National Social Science Fund of China

(No. 23&ZD054).

Wen Chen, Yinzi Fan / 1–27, Vol. 32, No. 5, 2024

©2024 Institute of World Economics and Politics, Chinese Academy of Social Sciences

2

2004; Cherniwchan et al., 2017). To address this challenge, many countries have adopted

nontariff measures (NTMs) as a key policy tool for implementing green supervision

of imported products. Environment-related notifications, a subset of NTMs, include

over 20 types of measures, such as technical barriers to trade (TBT), sanitary and

phytosanitary measures (SPS), subsidies and countervailing measures, and agreements

of agriculture. These environment-related notifications aim to improve the quality

of the environment by establishing green technical standards for imported products,

thereby reducing their environmental impact. Between 1997 and 2019, World Trade

Organization (WTO) member countries implemented a total of 9,337 environment-

related notifications, with an average annual growth rate of approximately 6.30 percent.

Despite their widespread use, there has been a significant lack of research on this

topic. Empirical evidence on the impact of these notifications on the green innovation

behaviors of exporting enterprises is scarce. This study explores how Chinese exporting

enterprises responded to environment-related notifications through green innovation. Its

aim is to enrich the current literature and provide targeted policy recommendations.

Specifically, this study explores the impact of the US environment-related

notifications on the green innovation practices of Chinese exporting firms. The focus on

this topic is motivated by several considerations. First, the issuance of these notifications

typically leads to the elevation of green standards for imported products, prompting

exporting firms to adjust their green innovation behaviors to safeguard their export

earnings. However, existing research has primarily investigated the impact of NTMs

on trade (Bown and Crowley, 2007; Bao and Qiu, 2012; Lu et al., 2013), with limited

exploration of how firms respond and adapt through innovation (Chakraborty and

Chatterjee, 2017), especially in terms of green innovation. Notably, green innovation

differs from traditional innovation by generating knowledge spillovers and functioning

as an environmental public good (Rennings, 2000), thereby increasing its complexity

(Petruzzelli et al., 2011; Xia and Liu, 2022).

Second, with China’s increasing emphasis on ecological protection during its

economic development in recent years, there has been a growing demand for firms

to enhance their green innovation capabilities. The 19th National Congress of the

Communist Party of China explicitly called for the establishment of a market-oriented

green technology innovation system, further emphasizing the importance of studying

green innovation.

Third, we chose to study the US environment-related notifications for several

reasons. The US is one of China’s most important trade partners, and its initiation of

NTMs has had a significant impact on the exports of Chinese enterprises (Lu et al., 2013).

The US is also the second-largest enforcer of environment-related notifications worldwide.