Import competition and firm energy intensity: Evidence from China

Abstract

The impact of trade on environmental performance has recently become a hot topic. However, little is known about whether import trade affects the energy use of developing countries. Therefore, we use detailed micro-firm data on China’s manufacturing sector to investigate the impact of import competition on firms’ coal energy intensity. We measure the degree of import competition by import penetration and estimate firm-level data for 2001–2010 using a fixed effects model and 2SLS strategy. The findings suggest that import competition significantly reduces coal energy intensity for Chinese firms, which implies that increasing imports will make it easier for China to meet the objective of “carbon peaking, carbon neutral”. By decomposing import competition, we find that differences in the sources of import competition can explain decline changes in firm energy intensity. The theoretical framework and mechanism tests show that the improvement of production and technology application efficiency are the main channels through which import competition decreases energy intensity. However, there is no evidence that import competition has driven firm green transformation process. Finally, we constructed an industry correlation index using the input–output relationship between industries to confirm that import competition affects the energy intensity of near-neighbor industries.