Environmental Regulation Of China's Export Trade - The Theoretical And Empirical Analysis

Environmental protection has become one of the three major themes of the world since 1990s, together with peace and development. Many international organizations such as the United Nations Conference on Trade and Development, United Nations Environment Program and OECD, regard the environment and trade issues as major issues of the organization. Environmental regulations are increasing, environmental standards are getting higher and higher. Under this background, study on environmental and trade issues becomes more important. However, opinions for environmental regulations on trade are still controversial. Traditional opinion think environmental regulation will have negative impact on trade, which leads to the improvement of production costs. However some scholars, represented by Porter, bring up the concept of "Porter Hypothesis". They think that when the phenomenon of x-inefficiency exists, the environmental regulation will promote the enterprises to do technology innovation and improve production process to increase factor productivity, which will have positive impact on trade at last. This study choose China as the object, using the bilateral trade model to investigate foreign environmental regulation influence on the exports of China (specifically choose the chemical industry for analysis). On the other hand, we also study the domestic environmental regulation on China's own exports, in order to test whether "Porter Hypothesis" is set up in China. For the measurement of environmental regulation, we introduce EPI and establish ERS Index innovatively, which was used in unilateral and bilateral trade model respectively. The empirical results show that foreign environmental regulation has negative impact on the exports of chemical industry of China. On the contrary, China's own regulations have contributed to the development of China's exports. That is to say, "Porter Hypothesis" is tenable in China. In order to further exam the empirical results, we also selected representative industries for study, analyzing the impact of environmental regulations on international competitiveness. Finally, the conclusion of this paper is that, in the short term, foreign environmental regulations have a significant negative impact on the exports of chemical industry of China. If we use EPI for measurement, when the index increases by 1%, the export of chemical products in China goes down 5%. On the other hand, China's domestic regulations on environment have significant impacts in promoting its own exports. "Porter Hypothesis" has been verified in China. If we use investments on industrial pollution control as the variable for measurement, when it increases by 1%, the export goes up 0.05%. If we use ERS Index instead, when the index increases by 1%, the export goes up 0.1%. Finally, the industry analysis shows that, for paper & paper related products industry and ferrous metal smelting & rolling industry, ERS index and international competitiveness index give a positive correlation relationship. It means there is no evidence to say environmental regulation has negative impact on competitiveness. According to the results of empirical and industry analysis, the Chinese government should seize the opportunity to strengthen domestic environmental standards and regulations, narrow the gap with the developed countries.