Testing environmental Kuznets curve hypothesis: considering the impact of Sino-US trade on three main industries in China.

Abstract

To achieve carbon neutrality and carbon reduction goals, China needs to consider industrial structure and trade. This study aims to test the validity of environmental Kuznets curve (EKC) hypothesis at the industry level in China and study the different impact of Sino-US trade in intermediate goods and trade in final goods on China's environment. To do so, we used the annual data of China's 25 sectors in 1990-2015 and classified 25 sectors into three main industries. Based on the Stochastic Impacts by Regression on Population, Affluence and Technology framework, we investigated the validity of EKC hypothesis and the driving factors of greenhouse gas (GHG) emissions. The results show that (1) EKC hypothesis is verified for the country and the tertiary industry. (2) Compared with the primary industry and the secondary industry, the economic growth of the tertiary industry brings less GHG emissions. (3) Intermediate goods exported to all sectors in the USA will increase GHG emissions in the country and the three main industries, but final goods exported to consumers in the USA will reduce GHG emissions except the tertiary industry. From our results, the EKC hypothesis is a suitable model for environmental policy in tertiary industry, but it does not apply to the primary industry and the secondary industry. Environmental policy in the primary industry and the secondary industry needs to focus on reducing energy intensity. In the case of exports to the USA, intermediate goods pollute the environment, while final improve the environment. Thus, China needs to increase controls on exports of intermediate goods with low added value and high pollution and gradually shift to the production of environmentally friendly final goods.