From Smokestacks to Smart Factories: Improving the Quality of Environment and the Rise of Knowledge‐Intensive Activities

ABSTRACT In the context of sustainable development goals, which aim to improve the quality of the environment, this study examines the impact of environmental quality on export sophistication. Better environmental performance can have positive effects on the competitiveness of companies and the perception of products by foreign consumers. The study uses a global sample of 115 countries and panel data models. A variety of methods are used to estimate the effect of environmental performance on export sophistication. These methods are robust and have been validated by other studies using comparative techniques. The results indicate that environmental performance has a significant positive effect on export sophistication. This effect is observed in both developed and developing countries, as well as in Christian, Muslim and Hindu majority countries. However, in countries with a majority of other religions, environmental performance has a negative effect on export sophistication. The positive effect of environmental performance on export sophistication can be explained by several factors. Companies that adopt sustainable environmental practices can improve their image and reputation with respect to foreign consumers. In addition, strict environmental regulations can encourage companies to innovate and develop better quality products. The negative effects observed in some countries can be explained by factors such as the structure of the industry, the level of technological development and the environmental policies in place. This study shows that improving the quality of the environment can be an effective way of improving the sophistication of exports. Industrial policies should therefore include environmental considerations to encourage companies to adopt sustainable practices.