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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. Brian R. Copeland & M. Scott Taylor, 2004. "Trade, Growth, and the Environment," Journal of Economic Literature, American Economic Association, vol. 42(1), pages 7-71, March.
  2. Arik Levinson, 2009. "Technology, International Trade, and Pollution from US Manufacturing," American Economic Review, American Economic Association, vol. 99(5), pages 2177-92, December.
  3. Barry Naughton, 2007. "The Chinese Economy: Transitions and Growth," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262640643, December.
  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. 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.
  6. Josh Ederington, 2005. "Trade Liberalization And Pollution Havens," Working Papers id:51, eSocialSciences.
  7. repec:sae:niesru:v:149:y::i:1:p:30-52 is not listed on IDEAS
  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 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 31/2008, Bank of Finland, Institute for Economies in Transition.
  10. Chow, Gregory C., 2006. "New capital estimates for China: Comments," China Economic Review, Elsevier, vol. 17(2), pages 186-192.
  11. 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.
  12. Carsten A. Holz, 2005. "New Capital Estimates for China," Development and Comp Systems 0504011, EconWPA.
  13. 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.
  14. 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.
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Cited by:
  1. Fernando Broner & Paula Bustos & Vasco Carvalho, 2011. "Sources of comparative advantage in polluting industries (with appendix)," Economics Working Papers 1331, Department of Economics and Business, Universitat Pompeu Fabra, revised Mar 2013.
  2. Svetlana Batrakova & Ronald B Davies, 2010. "Is there an environmental benefit to being an exporter? Evidence from firm level data," Working Papers 201007, School Of Economics, University College Dublin.
  3. 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.
  4. Broner, Fernando A & Bustos, Paula & Carvalho, Vasco M, 2012. "Sources of Comparative Advantage in Polluting Industries," CEPR Discussion Papers 9111, C.E.P.R. Discussion Papers.
  5. Chris Milner & Fangya Xu, . "On The Pollution Content of China’s Trade: Clearing the Air?," Discussion Papers 09/19, University of Nottingham, GEP.
  6. Jayanthakumaran, Kankesu & Liu, Ying, 2012. "Openness and the Environmental Kuznets Curve: Evidence from China," Economic Modelling, Elsevier, vol. 29(3), pages 566-576.
  7. Laura Hering & Sandra Poncet, 2011. "Environmental policy and trade performance: Evidence from China," Working Papers 2011-30, CEPII research center.
  8. 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.
  9. Jiang, Liangliang & Lin, Chen & Lin, Ping, 2014. "The determinants of pollution levels: Firm-level evidence from Chinese manufacturing," Journal of Comparative Economics, Elsevier, vol. 42(1), pages 118-142.
  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 halshs-00628832, HAL.

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