Do Firms Pollute Less in Special Economic Zones? Firm‐Level Evidence From China

ABSTRACT Using micro‐level data, this paper examines the effects of special economic zones (SEZs) on firms' pollution emissions in China. Our results show that the establishment of SEZs in China lowers SEZ firms' air pollution by at least 13%. Incumbents play the major role in generating this effect. Surrounding non‐SEZ firms' emissions also decrease through spillover effects. We also employ the boundary discontinuity difference‐in‐differences (BD‐DID) approach to tackle the endogeneity problem. Our results are robust when focusing on SEZs whose boundaries are more exogenous to local firms. SEZs' export promotion, innovation stimulation, environmental regulation and public abatement facilities potentially contribute to these effects.