Firm Entry, Environmental Regulation, and Air Pollution: Evidence from China’s Air Pollution Prevention and Control Action Plan

This paper examines how local firm entry affects air pollution and whether the Air Pollution Prevention and Control Action Plan (APPCAP) changes this relationship. Using a county–month panel for 2010–2020, we match the Chinese Industrial and Commercial Enterprise Registration Database with county-level monthly PM2.5 data to measure new firm entry and its sectoral composition. To address the potential endogeneity of firm entry, we use the opening of high-speed rail as an instrumental variable. The results show that firm entry significantly increases county-level PM2.5 concentrations. This effect is highly heterogeneous across industries, with stronger pollution effects in sectors such as wholesale and retail, manufacturing, and accommodation and catering. We further find that the APPCAP significantly weakens the positive effect of firm entry on air pollution. Additional evidence suggests that the policy improves air quality not only by tightening environmental constraints, but also by shifting firm entry toward relatively cleaner industries. This paper explains the environmental consequences of local economic expansion from the perspective of incremental firm entry and provides new evidence on the joint role of environmental regulation and industrial restructuring in air pollution control.