Impact Of Environmental Regulation On Export Trade Of Pollution Intensive Industries In China

Environmental regulation and factor endowments both affect the comparative advantage of a region, but the impact of environmental regulation on export trade is of uncertainty especially for pollution-intensive industries. Excessive environmental regulation would reduce the industry comparative advantage and weaken the competitiveness. On the other hand, insufficient regulation may aggravate the damage to customers caused by environmental degradation. In China where it is now at the period of industry upgrading and transformation, environmental regulation will become a driving force to optimize resource allocation and promote location transfer of pollution-intensive industries. Therefore, it is of great significance to investigate the impact of environmental regulation under different factor allocations.It was found that although pollution is a joint product, it could be equally regarded as an input factor of production like capital or labor force. The impact of environmental regulation on pollution could hence be reflected in the form of input factor. Therefore, the trade of pollution products is determined by the comparative advantage of production factors, which is jointly determined by environmental regulation, capital and labor force. Given the same condition of other factors, there is a critical point of environmental regulation stringency, where excessive or insufficient regulation together with factor endowments could cause opposite influence on the comparative advantage of pollution-intensive industries.In light of the theoretical analysis above, this dissertation proposed an indicator of industrial pollution to define the pollution intensive industries, and identified four industries that would be the most sensitive to environmental regulation as the subject investigated. An evaluation system was then built to assess the stringency of industrial environmental regulation. Thereafter, the relationship between environmental regulation and export trade of the four most pollutionintensive industries was tested by a dynamic panel data model, which was developed based on the HOV model and the evaluation system for environmental regulation. The results showed that environmental regulation has a significant "U-shaped" impact on exports of pollution-intensive industries, and under the current economic level, the improvement of environmental regulation is still not conducive to industrial development and export trade.The theoretical and empirical analyses in this dissertation both reinforce the possibility of a synchronous economy growth with an improved environment. If regulation can guide the production and consumption to a sustainable development, trade will in turn promote the above mentioned synchronous improvement. This dissertation also suggested a flexible pollution emission policy subject to the critical point of environmental regulation and the ERS of different industries. Furthermore, although each country has rights to take measures to control domestic environmental pollution, it should not compel other countries to lower their environment standards in order to enable the product circulation. Instead, transnational pollution problem must be solved by international cooperation as well as foreign-domestic joint actions.