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Trade Growth, Production Fragmentation, and China's Environment

In: China's Growing Role in World Trade

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Author Info

  • Judith M. Dean
  • Mary E. Lovely

Abstract

Trade growth for a relatively poor country is thought to shift the composition of industrial output towards dirtier products, aggravating environmental damage. China's rapidly growing trade and serious environmental degradation appear to be no exception. However, much of China's trade growth is attributable 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 (1) China's industrial output has become cleaner over time, (2) China's exports have shifted toward relatively cleaner, highly fragmented sectors, and (3) the pollution intensity of Chinese exports has fallen dramatically between 1995 and 2004. We then explore the role of fragmentation and FDI in this trend toward cleaner trade. Beginning with a standard model of the pollution intensity of trade, we develop a model that explicitly introduces production fragmentation into the export sector. We then estimate this model using pooled data on four pollutants over ten years. Econometric results support the view that increased FDI and production fragmentation have contributed positively to the decline in the pollution intensity of China's trade, as has accession to the WTO and lower tariff rates.

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This chapter was published in:

  • Robert C. Feenstra & Shang-Jin Wei, 2010. "China's Growing Role in World Trade," NBER Books, National Bureau of Economic Research, Inc, number feen07-1, October.
    This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 10469.

    Handle: RePEc:nbr:nberch:10469

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    References

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    1. John Henley & Colin Kirkpatrick & Georgina Wilde, 1999. "Foreign Direct Investment in China: Recent Trends and Current Policy Issues," The World Economy, Wiley Blackwell, vol. 22(2), pages 223-243, 03.
    2. Arik Levinson, 2008. "Technology, International Trade, and Pollution from U.S. Manufacturing," NCEE Working Paper Series 200802, National Center for Environmental Economics, U.S. Environmental Protection Agency, revised Feb 2008.
    3. Julian Morgan & Nigel Pain, 1998. "The World Economy," National Institute Economic Review, National Institute of Economic and Social Research, vol. 164(1), pages 30-35, April.
    4. Werner Antweiler & Brian R. Copeland & M. Scott Taylor, 1998. "Is Free Trade Good for the Environment?," NBER Working Papers 6707, National Bureau of Economic Research, Inc.
    5. H. David Robison, 1988. "Industrial Pollution Abatement: The Impact on Balance of Trade," Canadian Journal of Economics, Canadian Economics Association, vol. 21(1), pages 187-99, February.
    6. Barry Naughton, 2007. "The Chinese Economy: Transitions and Growth," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262640643, January.
    7. Dean, Judith M. & Lovely, Mary E. & Wang, Hua, 2009. "Are foreign investors attracted to weak environmental regulations? Evaluating the evidence from China," Journal of Development Economics, Elsevier, vol. 90(1), pages 1-13, September.
    8. Chow, Gregory C., 2006. "New capital estimates for China: Comments," China Economic Review, Elsevier, vol. 17(2), pages 186-192.
    9. Josh Ederington, 2005. "Trade Liberalization And Pollution Havens," Working Papers id:51, eSocialSciences.
    10. Dean, Judith & Fung, K.C. & Wang, Zhi, 2008. "How vertically specialized is Chinese trade?," BOFIT Discussion Papers 31/2008, Bank of Finland, Institute for Economies in Transition.
    11. Brian R. Copeland & M. Scott Taylor, 2003. "Trade, Growth and the Environment," NBER Working Papers 9823, National Bureau of Economic Research, Inc.
    12. Carsten A. Holz, 2005. "New Capital Estimates for China," Development and Comp Systems 0504011, EconWPA.
    13. Judith M. Dean, 2002. "Does trade liberalization harm the environment? A new test," Canadian Journal of Economics, Canadian Economics Association, vol. 35(4), pages 819-842, November.
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    Cited by:
    1. Dean, Judith M. & Lovely, Mary E. & Wang, Hua, 2005. "Are foreign investors attracted to weak environmental regulations? Evaluating the evidence from China," Policy Research Working Paper Series 3505, The World Bank.
    2. Pauline Lacour & Catherine Figuière, 2011. "Environmentally friendly technologies transfers through trade flows from Japan to China - An approach by bilateral trade in environmental goods," Post-Print halshs-00628832, HAL.
    3. Laura Hering & Sandra Poncet, 2011. "Environmental policy and trade performance: Evidence from China," Working Papers 2011-30, CEPII research center.
    4. Chris Milner & Fangya Xu, . "On The Pollution Content of China’s Trade: Clearing the Air?," Discussion Papers 09/19, University of Nottingham, GEP.
    5. Richard Pomfret, 2009. "Regionalism in the Asia-Pacific Region: How Wide, How Deep?," School of Economics Working Papers 2009-31, University of Adelaide, School of Economics.
    6. Svetlana Batrakova & Ronald Davies, 2010. "Is there an environmental benefit to being an exporter? Evidence from firm level data," The Institute for International Integration Studies Discussion Paper Series iiisdp322, IIIS, revised Mar 2010.

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