A Study On The Environmental Effects Of China’s Foreign Trade

With the continuous development of trade liberalization, the issue of trade andenvironment has aroused more and more attention in the economics circle.Environmentalists and trade policy-makers have disputed for years over the environmentalimpact of trade liberalization. During the continuous rapid economic growth in China,foreign trade has played an important role, but meanwhile the serious environmentalpollution caused by the long-term extensive trade growth pattern has been aggravated,thus the contradictions between trade expansion and environmental pollution has also beenintensified. In the current context of global concern about climate change and emissionreduction, how to balance the trade benefits and environmental costs, to speed up theadjustment of trade growth mode and promote the coordinated development of trade andenvironment becomes an important task in China.The dissertation carries out a systematic theoretical and empirical analysis on theenvironmental effects of international trade in China based on the literature review ofexisting domestic and foreign related researches. Firstly, the dissertation explores themechanism and channels of environmental effects caused by trade theoretically with thegeneral equilibrium model on trade and the environment, laying the theoretical foundationfor the follow-up empirical research. Secondly, descriptive statistical analysis has beenmade on the current situation of trade openness and environmental pollution in China fromdifferent aspects of total scale, industry distribution, regional distribution and differenttrade modes using relevant data. Thirdly, the dissertation analyzes the environmentalimpact of trade liberalization in China empirically based on the time series data andinter-provincial panel data. Furthermore, trade-embodied pollution emissions have beencalculated from the perspectives of total amount, industry distribution and foreign tradebetween major trading partners based on non-competitive (import) input-output tables andthe change in the emissions embodied in imports and exports has been decomposed intodifferent factors by structure decomposition analysis. Finally, the dissertation puts forwardseveral policy advices for the realization of “win-win” of trade development andenvironmental protection based on the theoretical and empirical conclusions.The dissertation mainly includes the following contents and conclusions:Firstly, the dissertation has set up the general equilibrium model of trade and the environment and decomposed the environmental effects of trade into scale, technique andcomposition effects focusing on the trade-induced composition effects. The analysis showsthe composition effects mainly depend on the comparative advantages in a country andvary for the pollution-intensive exporters or importers. Comparative advantages are jointlydetermined by the differences in relative factor endowments and relative environmentalregulations, and the environmental effects of different trade pattern caused by comparativeadvantages based on different factors provide opposing forces. Therefore thetrade-induced composition effects finally depend on the relative degree of factorendowment effects and environmental regulation effects.Secondly, the dissertation has made a descriptive statistical analysis of foreign tradeand environment in China and the results imply that there is a correlation between totalpollution emissions and trade volume and obvious imbalance occurs in both the industrialdistribution and regional distribution of trade and pollution emissions. The relatively highratio of processing trade aggravates the deterioration of environmental quality to someextent.Thirdly, the empirical analysis of foreign trade and industrial pollution emissionsbased on VAR model shows that there is a positive cointegration relationship betweenindustrial waste water, industrial gas, industrial solid waste and trade scale, implying thatthe continuous expansion of trade scale increases the consumption of limited domesticresources as well as pollution emissions, resulting in negative environmental effects.Furthermore, the empirical results show that a long-term positive cointegration relationbetween processing trade dependence and industrial pollution emissions is also observed,which means China’s rapid development of processing trade is also a major cause of thedeterioration of environmental quality. The empirical analysis using provincial panel dataindicates that trade openness is the important factor affecting environmental quality andthe estimation results of trade-induced composition effects confirm factor endowmenteffects and environmental regulation effects to some degree, but the estimations vary withdifferent pollutant index and measurements. Relatively speaking, the elasticities fortrade-induced composition effects are small and the comprehensive environmental effectswith the combination of scale, technique and composition effects is uncertain for mostpollutants.Fourthly, using the input-output method the dissertation the dissertation has assessedthe environmental costs in the form of trade-embodied pollution emission and evaluated the changes in pollution terms of trade (PTT), the industry distribution of pollutionemissions embodied in imports and exports and embodied emission with different tradingpartners. Furthermore, the changes in trade-embodied emissions during1997-2007havebeen decomposed into direct pollution intensity, intermediate production technology,import and export structure and trade scale. The results show that China is a net exporterof embodied industrial waste water, industrial sulfur dioxide, industrial soot and industrialdust, which means a large amount of industrial pollution emission is caused for theconsumption of foreign consumers, revealing the existence of both massive trade surplusand ecological deficit. From the comparison of pollution terms of trade, most PTT indexesin2007were deteriorated to different degrees. Meanwhile the industry distribution ofpollution emissions embodied in imports and exports demonstrates high degree ofcentralization and major trading partners with China represented by USA, Hong Kong,Japan and EU have become the main beneficiaries of China’s export-embodied emission.Decomposition by SDA shows that import and export scale is undoubtedly the mostimportant driver of embodied emission growth and the substantial decrease of directpollution intensity offset part of the increased emissions. While the effects of intermediateproduction technology are uncertain, composition effects brought by the changes in importand export structure are relatively weak.Finally, in the consideration of weighing trade gains and environmental costs, thedissertation has presented some policy suggestions to promote the coordinateddevelopment of trade and environment in China from international, national, regional andindustrial perspectives respectively. According to the estimation of trade-embodiedpollution emissions, trade activities in various industries have been classified into fourcategories including “encouraged”,“permitted”,“adjusted” and “restricted” to provideclassified guidance for the adjustment and upgrading of trade structure.