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Trade Growth, Production Fragmentation, and China's Environment

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  • 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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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13860.

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Date of creation: Mar 2008
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Publication status: published as Trade Growth, Production Fragmentation, and China's Environment , Judith M. Dean, Mary E. Lovely. in China's Growing Role in World Trade , Feenstra and Wei. 2010
Handle: RePEc:nbr:nberwo:13860

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  1. Levinson, Arik, 2007. "Technology, International Trade, and Pollution from U.S. Manufacturing," Discussion Papers, Resources For the Future dp-07-40, Resources For the Future.
  2. H. David Robison, 1988. "Industrial Pollution Abatement: The Impact on Balance of Trade," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 21(1), pages 187-99, February.
  3. Holz, Carsten A., 2006. "New capital estimates for China," China Economic Review, Elsevier, Elsevier, vol. 17(2), pages 142-185.
  4. Brian R. Copeland & M. Scott Taylor, 2004. "Trade, Growth, and the Environment," Journal of Economic Literature, American Economic Association, American Economic Association, vol. 42(1), pages 7-71, March.
  5. Josh Ederington & Arik Levinson & Jenny Minier, 2004. "Trade Liberalization and Pollution Havens," NBER Working Papers, National Bureau of Economic Research, Inc 10585, National Bureau of Economic Research, Inc.
  6. Barry Naughton, 2007. "The Chinese Economy: Transitions and Growth," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262640643, December.
  7. John Henley & Colin Kirkpatrick & Georgina Wilde, 1999. "Foreign Direct Investment in China: Recent Trends and Current Policy Issues," The World Economy, Wiley Blackwell, Wiley Blackwell, vol. 22(2), pages 223-243, 03.
  8. Robert Koopman & Zhi Wang & Shang-Jin Wei, 2008. "How Much of Chinese Exports is Really Made In China? Assessing Domestic Value-Added When Processing Trade is Pervasive," NBER Working Papers, National Bureau of Economic Research, Inc 14109, National Bureau of Economic Research, Inc.
  9. Dean, Judith & Fung, K.C. & Wang, Zhi, 2008. "How vertically specialized is Chinese trade?," BOFIT Discussion Papers, Bank of Finland, Institute for Economies in Transition 31/2008, Bank of Finland, Institute for Economies in Transition.
  10. repec:sae:niesru:v:149:y::i:1:p:30-52 is not listed on IDEAS
  11. Chow, Gregory C., 2006. "New capital estimates for China: Comments," China Economic Review, Elsevier, Elsevier, vol. 17(2), pages 186-192.
  12. Werner Antweiler & Brian R. Copeland & M. Scott Taylor, 1998. "Is Free Trade Good for the Environment?," NBER Working Papers, National Bureau of Economic Research, Inc 6707, National Bureau of Economic Research, Inc.
  13. 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, The World Bank 3505, The World Bank.
  14. Judith M. Dean, 2002. "Does trade liberalization harm the environment? A new test," Canadian Journal of Economics, Canadian Economics Association, 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, The World Bank 3505, The World Bank.
  2. Chris Milner & Fangya Xu, . "On The Pollution Content of China’s Trade: Clearing the Air?," Discussion Papers, University of Nottingham, GEP 09/19, University of Nottingham, GEP.
  3. Svetlana Batrakova & Ronald Davies, 2012. "Is there an environmental benefit to being an exporter? Evidence from firm-level data," Review of World Economics (Weltwirtschaftliches Archiv), Springer, Springer, vol. 148(3), pages 449-474, September.
  4. Jiang, Liangliang & Lin, Chen & Lin, Ping, 2014. "The determinants of pollution levels: Firm-level evidence from Chinese manufacturing," Journal of Comparative Economics, Elsevier, Elsevier, vol. 42(1), pages 118-142.
  5. Fernando Broner & Paula Bustos & Vasco M. Carvalho, 2012. "Sources of Comparative Advantage in Polluting Industries," NBER Working Papers, National Bureau of Economic Research, Inc 18337, National Bureau of Economic Research, Inc.
  6. Richard Pomfret, 2009. "Regionalism in the Asia-Pacific Region: How Wide, How Deep?," School of Economics Working Papers, University of Adelaide, School of Economics 2009-31, University of Adelaide, School of Economics.
  7. Laura Hering & Sandra Poncet, 2011. "Environmental policy and trade performance: Evidence from China," Working Papers, CEPII research center 2011-30, CEPII research center.
  8. Jayanthakumaran, Kankesu & Liu, Ying, 2012. "Openness and the Environmental Kuznets Curve: Evidence from China," Economic Modelling, Elsevier, Elsevier, vol. 29(3), pages 566-576.
  9. Fernando Broner & Paula Bustos & Vasco Carvalho, 2011. "Sources of comparative advantage in polluting industries (with appendix)," Economics Working Papers, Department of Economics and Business, Universitat Pompeu Fabra 1331, Department of Economics and Business, Universitat Pompeu Fabra, revised Mar 2013.
  10. 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, HAL halshs-00628832, HAL.

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