1. Introduction
Since its accession to the World Trade Organization (WTO), China’s export trade has expanded rapidly, making it the world’s largest exporter in 2009. However, even though “Made in China” has achieved considerable market share in international competition, it has not yet been “winning by quality.” In other words, there is still a significant gap between China’s product quality and that of developed countries [
1]. Consequently, low-quality and low-price exports cause persistent deterioration in China’s terms of trade. At present, with international competition undergoing a profound change, countries ought to seize the opportunity to rapidly improve export competitiveness, thereby moving closer to the center of the world stage and increasing the possibility of leading international trade regulation. The transformation and upgrading of China’s export trade need to improve product quality through technological innovation, thus cultivating new advantages in export competition.
However, along with the rapid development of its economy and trade, China has paid a heavy price for environmental pollution. In recent years, due to the frequent occurrences of an air-quality index over 500 (the maximum pollution level) in many regions, the social desirability of a beautiful ecological environment is becoming more and more urgent. Therefore, the Chinese government is attaching increasing importance to environmental protection. From “The 11th Five-Year Plan” to “The 13th Five-Year Plan,” the government has continuously strengthened the intensity of environmental regulation and implemented a high standard of environmental protection measures to improve the quality of the ecological environment. However, environmental regulation is a “double-edged sword” [
2]. Will strengthening environmental governance inhibit industrial technological innovation? Can the enforcement of environmental regulation achieve a “win-win” situation between environmental quality improvement and export quality upgrading? The above issues are related to the coordinated development of China’s ecological civilization and trade power and are worthy of in-depth exploration.
There are numerous studies on the relationship between environmental regulation and export competitiveness, and two totally different views have emerged. The conventional view holds that the compliance cost of strict environmental regulation may squeeze out some budgets for technological innovation and, thus, weaken the long-term competitiveness of a country’s exports [
3,
4,
5]. Specifically, in order to achieve cleaner production and meet environmental standards, enterprises have to spend more on controlling and reducing pollution [
6,
7,
8]. The additional costs for environmental protection activities impose a new constraint on firms’ production decisions and operations management, thereby having an inhibiting effect on enterprise competitiveness [
9,
10,
11]. However, other empirical studies show that there is no significant evidence that supports the conventional view [
12,
13,
14]. To modify the conventional view, Porter [
15] and Porter and Linde [
16] proposed that the relationship between environmental regulation and firm competitiveness is complementary, rather than mutually exclusive, through the innovation offset effect, which is referred to as the “Porter hypothesis”. The implementation of strict environmental regulation means the emergence of new profit opportunities, which can stimulate domestic firms to conduct environmentally related innovation and technological design [
17,
18,
19,
20,
21]. As a result, this may promote firm productivity and the international competitiveness of domestic industry [
22,
23,
24].
In contrast, there are different findings from the empirical research on the validity of the Porter hypothesis. Gray and Shadbegian [
25] used paper-making enterprise data from the United States, Lanoie et al. [
26] utilized manufacturing industry data from Canada, and Greenstone et al. [
27] employed manufacturing enterprise data from the United States to conclude that environmental regulation has led to the decline of domestic productivity and international competitiveness to some extent. Others have reached conclusions that are more nuanced. Cole and Elliott [
28], Marconi [
29], Nesta et al. [
30], and Liu and Xie [
2] argued that the impacts of environmental regulation on export competitiveness might be heterogeneous across different countries or industries. In addition, Rexhäuser and Rammer [
31], Banerjee and Gupta [
32], and Yuan and Zhang [
33] found that different types of environmental regulation policies possibly had distinct effects on competitiveness.
One possible explanation for the differences is that the measure of export competitiveness in most literature is neither appropriate nor realistic. Researchers largely use the comparative advantage indexes based on traditional trade theory as proxies for export competitiveness, such as revealed comparative advantage, market share, net export, and trade competitiveness. However, these indexes essentially reflect the competitive advantage of a country or industry in terms of export volume. In recent decades, with the gradual deepening of economic globalization and vertical specialization, export volume no longer directly represents the comprehensive strength of a country’s or industry’s participation in international trade and specialization, as it is disproportionate to trade gains [
2]. Consequently, the comparative advantage indexes largely used in the existing literature cannot realistically reflect a country’s export competitiveness.
In view of this, it is particularly necessary to explore a more accurate measure of export competitiveness. Currently, the “new-new” trade theory, represented by the models of heterogeneous firms, has been widely popularized and developed. This theory emphasizes that firms have heterogeneity not only in productivity [
34] but also in product quality [
35]. Product quality plays a key role as a determinant of one country’s export performance and trade gains, especially after allowing for the vertical product differentiation. In addition, a substantial amount of empirical evidence indicates that product quality contributes significantly to re-understanding the source of export competitiveness [
1,
36,
37]. Compared with traditional comparative advantage, product quality upgrading is more important and indispensable to export success and sustainable development in the context of economic globalization and vertical specialization. Therefore, product quality may provide a new perspective from which to investigate the systematic relationship between environmental regulation and export competitiveness. Moreover, the existing literature has mostly focused on whether environmental regulation improves or weakens export competitiveness, providing some useful insights into Porter hypothesis, but it lacks a systematic theoretical framework. Relatively few studies have pointed to how environmental regulation affects export competitiveness, as well as which possible channels are effective. Thus, further research is needed to fill the gap.
To supplement existing theoretical and empirical studies, this study constructs an analytical framework of export competitiveness from the perspective of product quality, intending to reveal the theoretical mechanism of environmental regulation affecting export quality. Further, we empirically examine the impact of environmental regulation on export quality for China’s manufacturing industry, as well as its possible mechanism. The findings show that, firstly, environmental regulation can significantly promote the export quality upgrading of the manufacturing industry, and China’s environmental regulation policies, to some extent, support the strong Porter hypothesis. Secondly, process and product productivity are two possible channels through which environmental regulation affects export quality, and their mediating effects have opposite directions. The mediating effect of product productivity is obviously greater than that of process productivity, indicating that environmental regulation mainly has an innovation offset effect on China’s manufacturing industry. Thirdly, the impact of environmental regulation on export quality and its mechanism show the significant heterogeneity of regulated industries. For pollution-intensive industries, environmental regulation plays a significant promoting role through the channel of product productivity. However, for clean industries, environmental regulation has a certain degree of inhibitory effect through the channel of process productivity.
The main contributions of this paper are reflected in the following two aspects. First, in a departure from the comparative advantage perspective largely used in previous literature, this study analyzes export competitiveness from the perspective of product quality, which can supplement existing research on the endogenous determinants of export competitiveness. Second, our study extends the stream of literature on the Porter hypothesis. We build a theoretical framework that reveals the internal relationship between environmental regulation and export quality and simultaneously provide empirical support for the Porter hypothesis. Third, our work contributes to the measure of product quality. Compared with the methods of Hallak and Schott [
1] and Liao and Xie [
38], we use the Elteto–Koves–Szulc (EKS) method to adjust the relevant indexes, which can not only simplify the calculation process but also increase the reliability and robustness of results.
This paper proceeds as follows.
Section 2 presents the materials and methods used in our study, including our theoretical framework.
Section 3 reports our empirical results.
Section 4 discusses the implications of the results and identifies key implications and limitations of the research, and
Section 5 concludes the paper.
4. Discussion
To supplement existing theoretical and empirical studies, this study investigates the systematic relationship between environmental regulation and export competitiveness from the perspective of product quality. The findings suggest that environmental regulation has a significant and stable promoting effect on the export quality upgrading of China’s manufacturing industry. This is basically consistent with the research of Li and Chen [
51] and Liu and Xie [
2], who believe that the innovation offset effect of strict environmental regulation policies is conducive to improving the export competitive advantage of “Made in China”. It also demonstrates that China’s environmental regulation policies significantly support the strong Porter hypothesis [
39,
52,
53].
Moreover, the results of mediation test not only fully verify the existence of the mediating effects, but also reflect that the directions of the mediating effects of process and product productivity are opposite to each other. Further calculation shows that the mediating effect of process productivity is −0.025 (−0.060 × 0.412), and the mediating effect of product productivity is 0.093 (0.195 × 0.477). Comparing them in absolute value terms, the mediating effect of product productivity is significantly greater than that of process productivity. This finding implies that the main effect of environmental regulation on China’s manufacturing industry is innovation offset, which is beneficial to export quality upgrading in general. It also lends support to the benchmark regression results above.
However, further analysis of industry heterogeneity reveals that the impact of environmental regulation on export quality and its mechanism show the significant heterogeneity of regulated industries. For pollution-intensive industries, environmental regulation plays a significant promoting role through the channel of product productivity, but, for clean industries, environmental regulation has an inhibitory effect through the channel of process productivity. A possible reason for this is that the government’s environmental policies of energy conservation and emission reduction put great pressure on enterprises in pollution-intensive industries, which in turn forces them to conduct technological innovation and quality upgrading in order to survive [
2]. On the contrary, the intensity of environmental regulation implemented by the government on clean industries is so weak, and it fails to reach the threshold value of the Porter hypothesis. Consequently, environmental regulation mainly exerts a cost effect on clean industries [
24], thereby reducing process productivity and inhibiting export quality upgrading.
Furthermore, our findings provide important enlightenment for the coordinated development of China’s ecological civilization and trade power. First, environmental regulation is an important driving force for the improvement of export quality. Therefore, the government should strengthen the intensity of environmental regulation within certain limits, forcing manufacturing enterprises to engage in clean technology innovation and improve product quality, thus promoting the transformation and upgrading of export trade. The government should raise the market access threshold for environmental standards, so that environmental regulation can play a screening role in enterprises entering the export market, thereby optimizing the reallocation of resources among enterprises.
Second, the government should design differentiated environmental regulation policies for industries with different pollution intensities. For pollution-intensive industries, the government can adopt environmental standards, emission limits, and other command-and-control environmental policy instruments to give full play to the role of environmental regulation in export quality upgrading, accelerate process improvement and product renewal, and realize the sustainable development of export trade. For clean industries, market-based environmental policy instruments, such as emission trading and environmental subsidies, can be used to stimulate enterprises to accelerate clean technology research and development, thereby meeting the environmental requirements of foreign markets and fostering new advantages in export competition.
In addition, the findings of this paper can also provide beneficial environmental policy implications to other developing countries. As a developing country, China inevitably faces the problem of how to deal with ecological deterioration and environmental pollution in the process of rapid industrialization [
54]. We find that environmental regulation can not only promote cleaner production, pollution control and emission reduction, but also facilitate the high-quality development of the manufacturing industry. Therefore, developing countries, on the one hand, should formulate environmental policies appropriate to their own economic development level, thereby phasing out manufacturing enterprises with high pollution and low efficiency. On the other hand, developing countries should selectively attract investment and prudently treat the participation of foreign capital in pollution-intensive industries [
55], so as to avoid becoming the pollution haven of developed countries.
However, there are some limitations in this study. We focus on the investigation of market competitiveness from the perspective of product quality, as well as its determinants, whereas the relationship between price and product quality is neglected. Our theoretical framework is constructed at the firm-product level, but we conduct empirical tests at the industry level due to the limited availability of micro-data. In addition, the impact of environmental regulation on export quality is a complex process, and there may be multiple mechanisms. In view of this, this paper should be considered as a preliminary analysis, and more detailed and in-depth research is still needed.