Trade liberalization and environmental degradation in China

Abstract

Being aware that trade liberalization affects the environment by scale, technique and composition effects, this study uses provincial data from 1993 to 2002 in China to empirically investigate how they affect the environment. Adopting the methodology provided by Antweiler et al. (2001) and slightly modifying their model, this study examines whether the composition effects arising from increasing trade originate due to differences in capital-labour endowment (factor endowment hypothesis) and/or differences in environmental regulations accompanied by income growth (pollution haven hypothesis) in China. The results indicate that the evidence of factor endowment hypothesis is found in most of the pollutants studied in this article, whilst there seems no evidence of pollution haven hypothesis. Combining with all the estimated elasticities of scale and technique effects, composition effects and trade intensity on emissions, I find that increasing international trade has opposite impacts on the environment due to different pollutants. That is, for air pollutants (SO2 and dust fall) increase in trade leads to more emissions, whilst for water pollutants (COD, arsenic and cadmium) trade liberalization decreases emissions.