Abstract
The study investigates the impact of trade openness on pollution in China by applying wavelet-coherence analysis, phase-difference technique and Breitung and Candelon (2006) causality test. The estimated results provide some dynamic association between trade openness and pollutant variables. The results indicate that trade openness has increased pollution in China especially after 2001 when China became member of WTO. It suggests that “pollution haven hypothesis” exists in China. These results imply that trade openness has increased exports which has increased domestic production by increasing the scale of industries, which in turn has increased pollution in the country. The findings of spectral domain causality test show that trade openness causes carbon emission both in short, medium and long runs. It indicates that trade openness forecast carbon emissions in China. The results suggest that China should take suitable measures while following trade openness policy to avoid pollution.
Highlights
China initiated the process of trade reforms in 1978, which increased its volume of trade at a remarkable level
The paper investigates the impact of trade openness on pollution in China
The findings show that trade openness has increased pollution in China especially after 2001 when China joined WTO
Summary
China initiated the process of trade reforms in 1978, which increased its volume of trade at a remarkable level. In developed countries technique effect will dominate both scale and composition effects, the net impact of trade is beneficial to environment. Some studies have shown detrimental while others have shown beneficial effect of trade on pollution These mixed and inconclusive results could be due to different assumptions, study objectives, econometric methods used, pollution variables, period of analysis, panel vs times series data, cross-sectional units taken, single vs multi-country analysis, etc. It calls for further analysis between trade and pollution in China as it is the largest pollution emitter county in the world and has world’s largest trade volume.
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