Processing trade and energy efficiency: Evidence from Chinese manufacturing firms

Abstract

Although processing export accounts for a great proportion of Chinese exports, Chinese processing trade is always different from the traditional trade in many aspects. Under the background of Chinese energy problems becoming energy problems of the world, it is critically significant to analyze Chinese energy efficiency performance from the perspective of processing export. Our research examines how firms’ processing export behaviors affect their energy efficiency. Our results illustrate that energy efficiency performance of China’s processing exporters is worse than that of non-processing exporters. Besides, there is an obvious inverse U-shaped relationship between processing export intensities and energy efficiency. When enterprises engage in processing exports, the promotional effects on energy efficiency are constantly improving when processing export intensity is low. However, when firm’s processing export intensity is high, the promotional effects of processing export activities on energy efficiency decline rapidly. Our results also suggest that the increased levels of participation in processing exports can promote firms’ energy efficiency through innovation effect when processing export intensity is low, while the increased participation in processing exports will decrease energy efficiency through cost reduction effect when firms’ processing export intensity is high. This research is the first attempt to examine the impacts of firms’ processing export activities on their energy use performance and provides significant policy advisories on transformation of China’s trade mode.