Place-specific product relatedness and the environmental performance of non-polluting exports in China.

Does the growth of non-polluting exports lead to better environmental performance? The answer depends on how these exports rest on local comparative advantages. The more exports rely on polluting inputs, the worse their environmental performance would be. In practice, it is difficult to directly measure the polluting inputs for exporting products at the local level. This study proposes an approach to measure the reliance of exports on local polluting inputs, based on the product relatedness theories and the resource-based view of firms. This approach applies the locational quotient to indicate local resource advantages. Then, it uses the co-occurrence probability to measure the product relatedness of one export to local resource advantages. Finally, it distinguishes the product relatedness to polluting resource advantages from non-polluting ones. A higher level of polluting product relatedness is expected to depress the environmental performance of exports. Using 30 sectors in 281 Chinese cities as a case, this study applies the fixed effect model and the threshold regression model to examine the effects of product relatedness on environmental performance. Empirical results support the efficiency of using product relatedness to predict the environmental performance of exports. A higher level of polluting product relatedness leads to poorer environmental performance and more adverse effects of export growth on the environment.