International trade and carbon emissions: The role of Chinese institutional and policy reforms

Abstract

The carbon dioxide embodied in Chinese exports to developed countries increased rapidly from 1995 to 2008. We test the extent to which institutional reforms in China can explain this increase. We focus on five areas of reforms: trade liberalization, environmental institutions, legal and property rights, institutional risk and exchange rate policy. Our results show that trade liberalization, weak environmental institutions, exchange rate policy, and legal and property rights affect emissions. Our results also indicate that the lack of reform in the utilities sector is an important factor in the rapid increase in embodied emissions.