The Environmental Effect Of China's Industrial Export Trade

Along with the constant deepening of China's reform and opening to the world, China has achieved great economic results which have attracted worldwide attention.Trade growth for a relatively poor country is thought to shift the composition of industrial output towards dirtier products, aggrabating environmental damage. China's rapidly growing trade and serious environmental degradation appear to be no exception. However, much of China's trade growth is attributale to the international fragmentation of production. This kind of trade could be cleaner, if fragmented production occurs in cleaner goods,or if China specializes in cleaner stages of production within these goods. Using Chinese official environmental data on air and water pollution, and official trade data, we present evidence that the industrial emissions are growing, at the same time the pollution intensity has fallen dramatically between 2000 and 2009. We then explore the role of fragmentation in this trend toward cleaner trade. Beginning with a standard model of pollution intensity of trade, we then estimate this model that explicitly introduces production fragmentation into export sector. We then estimate this model using pooled data on five pollutants over ten years. Econometric results support the view that increased production fragmentation have contributed positively to the decline in the pollution intensity of China's trade.