Exports making Indian factories up to 25% more eco-friendly: IIM study

Exports not only boost business growth but also make Indian factories greener, a study by the Indian Institute of Management (IIM), Lucknow, has found after analysing two decades of firm-level data.

Described as the first-of-its-kind, the study examined whether export orientation encourages Indian manufacturing companies to adopt greener practices. Led by Chandan Sharma, professor of Economics and Business Environment at IIM-Lucknow, it has been published in the prestigious Energy Economics (Elsevier) journal.

While trade is often criticised for raising environmental pressures in developing countries, there is limited causal evidence on whether exporting firms adopt greener practices, especially in terms of energy use.

By applying the Propensity Score MatchingDifference-in-Differences (PSM-DID) methodology, the researchers addressed this gap and explored several important insights.

"Our research shows that exports don't just boost growth, they also make Indian factories greener. Within a few years of entering global markets, companies become more energy efficient, largely by adopting advanced technologies.

"This highlights how trade can be a partner in India's journey toward sustainable and competitive manufacturing, apart from creating jobs," Sharma told PTI.

The findings of this study challenge the general perception that globalisation harms the environment in developing countries. Instead, it shows that international trade can become a driver of green growth to meet India's climate goals under the Paris Agreement.

According to the study, adoption of advanced foreign technologies improves a firm's energy efficiency by 25 per cent within three years, compared to similar non-exporters.

"We found that exposure of non-exporting firms to export-intensive industries leads to efficiency improvements. The findings also validate the robustness of results across multiple methods, alternative measures, and extended samples," Sharma said.

The professor explained that the firms entering the export markets tend to improve their energy efficiency, and these improvements persist over time.

"Mechanism analysis further reveals that these gains are largely driven by access to more advanced foreign technologies. In this way, trade may also serve as a channel for technology diffusion.

"By highlighting this connection, our study contributes to policy discussions on aligning trade with environmental objectives, particularly in developing economies facing the dual challenges of economic growth and ecological responsibility," Sharma said.

According to the professor, the findings of the study are relevant for policymakers who can induce exports by aligning trade policy with energy efficiency objectives.

"For instance, promoting foreign technology access, providing incentives for firms to upgrade to energy-efficient processes and reinforcing environmental standards among export-oriented industries," Sharma said.