Effect of Environmental Regulation on a Firm's Performance

Using a policy experiment that involved the imposition of a technical regulation by the Ministry of Environment and Forests on the Indian leather and textile industries in 1997, firm-level data set is used to study trade, adaptation, innovation and survival effects and how they vary by firm size. The study finds that (i) regulation led to significant gains from trade through the use of improved raw materials and technological change, especially for the big firms, (ii) use of high-quality raw materials and productivity  levels significantly account  for the exit decision of a firm, and (iii) regulation significantly affects the exit probabilities of all firms across size distribution.