Trade policy uncertainty and energy intensity: Evidence from Chinese industrial firms

Abstract

To achieve a carbon-neutral target, alongside the prevailing trade protectionism and the increasing pressure for environmental protection, clarifying the relationship between trade policy uncertainty and energy intensity is particularly important. This paper utilizes the natural experiment of China's World Trade Organization accession to identify reductions in trade policy uncertainty (TPU) and constructs a difference-in-differences model to explore the effect of TPU reduction on the energy intensity of Chinese industrial firms. The empirical results reveal that (1) TPU reduction significantly decreases firm's energy intensity; (2) Export, innovation and technical progress are mechanisms to interpret the decline of energy intensity after the reduction of TPU; and (3) The energy-saving effect of TPU reduction is higher for foreign-funded and privately owned firms than for state-owned firms, higher for coastland firms than for inland firms, and higher for polluting firms than for others. In addition, the degree of marketization and absorptive capacity of technology transfer in regions can increase the effect of TPU reduction on energy intensity. These conclusions provide evidence that decreasing the degree of TPU can help achieve the targets of energy conservation and emission reduction.