Research on the Impact of Air Pollution on Corporate Import Activities

Abstract

This study examines the impact of air pollution on firm-level import behavior in China, leveraging a comprehensive dataset spanning 2007 to 2016. By integrating city-level air quality data with firm-level production and trade records, the analysis employs a two-way fixed effects model and instrumental variable approach (using thermal inversion frequency as an instrument for PM₂.₅) to address endogeneity concerns. The results indicate that a 1% increase in PM₂.₅ concentration reduces firm imports by an average of 0.82%, primarily through two dominant mechanisms: suppressed labor productivity (mediated by health-induced efficiency losses) and liquidity crowding-out due to environmental investment demands. In contrast, the hypothesized import substitution effect—where firms might seek foreign intermediates amid rising domestic costs—is statistically insignificant, likely due to high switching costs and informational frictions. Heterogeneity analyses reveal stronger negative effects for non-state-owned enterprises, capital-intensive industries, and firms in inland regions. Notably, a countervailing increase in robot imports (5.3%) suggests strategic automation adoption to mitigate pollution-induced productivity declines. These findings underscore the need for differentiated environmental regulations and green trade incentives to balance sustainability goals with economic competitiveness