Are China's trade interests overestimated? Evidence from firms’ importing behavior and pollution emissions

Abstract

Importing is an important driving force for a country's economic growth. While importing promotes the expansion of economic scale, does it also lead the increase of pollution emissions in production? In this paper, we establish a micro theoretical model to analyze the impacts of importing on firms’ environmental performance, and then use the data of China's manufacturing firms for empirical tests. We show that the importing of intermediate goods or capital goods will lead to the increase of firms’ production scale, and thereby increasing their total emissions, which suggests that China's environment will be deteriorated by importing. On the other hand, importing also has some positive environmental effects that firms will increase their abatement investment after importing intermediate goods or capital goods, thus firms’ emission intensity can be effectively reduced. Altogether, this paper provides important evidence on the impacts of importing on pollution emissions at product-level. We suggest that when analyzing China's interests in trade, the environmental effects of trade should be taken into consideration, otherwise China's gains from trade will be overestimated. This paper also has important implications that while developing the economy through international trade, the government should strengthen environmental protection and advocate green trade.