IDEAS home Printed from https://ideas.repec.org/a/eee/ememar/v63y2024ics1566014124001110.html
   My bibliography  Save this article

Climate policy and China's external balances

Author

Listed:
  • Zheng, Shuang
  • Liu, Xiaohui
  • Gu, Yue

Abstract

To explore the impact of the China Carbon Emissions Trading Exchange (CCETE) on international trade and capital flow, we develop a two-country dynamic general equilibrium model with asymmetric climate policies. We use targets of decreasing carbon emissions intensity to simulate the strengthening of the CCETE policy. We find that the strengthening of climate policy improves China's trade balance and current account. We also find that output and carbon emissions of the rest of the world with a less stringent climate policy increase (known as carbon leakage) in the short run, but decrease (known as positive externalities of climate policy) in the long run. These findings suggest that China could benefit from more stringent climate policy due to the improvement of its external balances, and the world could also benefit due to the mitigation of climate change.

Suggested Citation

  • Zheng, Shuang & Liu, Xiaohui & Gu, Yue, 2024. "Climate policy and China's external balances," Emerging Markets Review, Elsevier, vol. 63(C).
    • Handle: RePEc:eee:ememar:v:63:y:2024:i:c:s1566014124001110
    DOI: 10.1016/j.ememar.2024.101216
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1566014124001110
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.ememar.2024.101216?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Klug, Thorsten & Mayer, Eric & Schuler, Tobias, 2022. "The corporate saving glut and the current account in Germany," Journal of International Money and Finance, Elsevier, vol. 121(C).
    2. Charlotte Janssens & Petr Havlík & Tamás Krisztin & Justin Baker & Stefan Frank & Tomoko Hasegawa & David Leclère & Sara Ohrel & Shaun Ragnauth & Erwin Schmid & Hugo Valin & Nicole Van Lipzig & Miet M, 2020. "Global hunger and climate change adaptation through international trade," Nature Climate Change, Nature, vol. 10(9), pages 829-835, September.
    3. Ernst, Anne & Hinterlang, Natascha & Mahle, Alexander & Stähler, Nikolai, 2023. "Carbon pricing, border adjustment and climate clubs: Options for international cooperation," Journal of International Economics, Elsevier, vol. 144(C).
    4. Annicchiarico, Barbara & Diluiso, Francesca, 2019. "International transmission of the business cycle and environmental policy," Resource and Energy Economics, Elsevier, vol. 58(C).
    5. Ton S. van den Bremer & Frederick van der Ploeg, 2021. "The Risk-Adjusted Carbon Price," American Economic Review, American Economic Association, vol. 111(9), pages 2782-2810, September.
    6. Gete, Pedro, 2020. "Expectations and the housing boom and bust. An open economy view," Journal of Housing Economics, Elsevier, vol. 49(C).
    7. Kahn, Matthew E. & Mohaddes, Kamiar & Ng, Ryan N.C. & Pesaran, M. Hashem & Raissi, Mehdi & Yang, Jui-Chung, 2021. "Long-term macroeconomic effects of climate change: A cross-country analysis," Energy Economics, Elsevier, vol. 104(C).
    8. Newell, Richard G. & Prest, Brian C. & Sexton, Steven E., 2021. "The GDP-Temperature relationship: Implications for climate change damages," Journal of Environmental Economics and Management, Elsevier, vol. 108(C).
    9. Sposi, Michael, 2022. "Demographics and the evolution of global imbalances," Journal of Monetary Economics, Elsevier, vol. 126(C), pages 1-14.
    10. Michał Burzyński & Christoph Deuster & Frédéric Docquier & Jaime de Melo, 2022. "Climate Change, Inequality, and Human Migration," Journal of the European Economic Association, European Economic Association, vol. 20(3), pages 1145-1197.
    11. George Economides & Anastasios Xepapadeas, 2018. "Monetary policy under climate change," Working Papers 247, Bank of Greece.
    12. Lawrence J. Christiano & Martin Eichenbaum & Charles L. Evans, 2005. "Nominal Rigidities and the Dynamic Effects of a Shock to Monetary Policy," Journal of Political Economy, University of Chicago Press, vol. 113(1), pages 1-45, February.
    13. Ferrari Minesso, Massimo & Pagliari, Maria Sole, 2023. "No country is an island. International cooperation and climate change," Journal of International Economics, Elsevier, vol. 145(C).
    14. Hashimoto, Ken-ichi & Ono, Yoshiyasu, 2020. "A simple aggregate demand analysis with dynamic optimization in a small open economy," Economic Modelling, Elsevier, vol. 91(C), pages 89-99.
    15. Gruhle, Tobias & Harms, Philipp, 2022. "Producer Services and the Current Account," Journal of International Money and Finance, Elsevier, vol. 121(C).
    16. Chang, Chun & Liu, Zheng & Spiegel, Mark M., 2015. "Capital controls and optimal Chinese monetary policy," Journal of Monetary Economics, Elsevier, vol. 74(C), pages 1-15.
    17. Acevedo, Sebastian & Mrkaic, Mico & Novta, Natalija & Pugacheva, Evgenia & Topalova, Petia, 2020. "The Effects of Weather Shocks on Economic Activity: What are the Channels of Impact?," Journal of Macroeconomics, Elsevier, vol. 65(C).
    18. Dietz, Simon & Stern, Nicholas, 2015. "Endogenous growth, convexity of damage and climate risk: how Nordhaus’ framework supports deep cuts in carbon emissions," LSE Research Online Documents on Economics 58406, London School of Economics and Political Science, LSE Library.
    19. Tol, Richard S.J., 2024. "A meta-analysis of the total economic impact of climate change," Energy Policy, Elsevier, vol. 185(C).
    20. Gouel, Christophe & Laborde, David, 2021. "The crucial role of domestic and international market-mediated adaptation to climate change," Journal of Environmental Economics and Management, Elsevier, vol. 106(C).
    21. Schmitt-Grohé, Stephanie & Uribe, Martín, 2021. "Reviving the Salter-Swan small open economy model," Journal of International Economics, Elsevier, vol. 130(C).
    22. William Nordhaus, 2018. "Projections and Uncertainties about Climate Change in an Era of Minimal Climate Policies," American Economic Journal: Economic Policy, American Economic Association, vol. 10(3), pages 333-360, August.
    23. Melissa Dell & Benjamin F. Jones & Benjamin A. Olken, 2014. "What Do We Learn from the Weather? The New Climate-Economy Literature," Journal of Economic Literature, American Economic Association, vol. 52(3), pages 740-798, September.
    24. Daniele Siena, 2021. "The Euro Area Periphery and Imbalances: Is it an Anticipation Story?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 40, pages 278-308, April.
    25. Ganelli, Giovanni & Tervala, Juha, 2011. "International transmission of environmental policy: A New Keynesian perspective," Ecological Economics, Elsevier, vol. 70(11), pages 2070-2082, September.
    26. Wolfram Schlenker & Maximilian Auffhammer, 2018. "The cost of a warming climate," Nature, Nature, vol. 557(7706), pages 498-499, May.
    27. Kalkuhl, Matthias & Wenz, Leonie, 2020. "The impact of climate conditions on economic production. Evidence from a global panel of regions," Journal of Environmental Economics and Management, Elsevier, vol. 103(C).
    28. Melissa Dell & Benjamin F. Jones & Benjamin A. Olken, 2012. "Temperature Shocks and Economic Growth: Evidence from the Last Half Century," American Economic Journal: Macroeconomics, American Economic Association, vol. 4(3), pages 66-95, July.
    29. Ju, Jiandong & Shi, Kang & Wei, Shang-Jin, 2021. "Trade reforms and current account imbalances," Journal of International Economics, Elsevier, vol. 131(C).
    30. Dietz, Simon & Venmans, Frank, 2019. "Cumulative carbon emissions and economic policy: In search of general principles," Journal of Environmental Economics and Management, Elsevier, vol. 96(C), pages 108-129.
    31. Simon Dietz & Nicholas Stern, 2015. "Endogenous Growth, Convexity of Damage and Climate Risk: How Nordhaus' Framework Supports Deep Cuts in Carbon Emissions," Economic Journal, Royal Economic Society, vol. 0(583), pages 574-620, March.
    32. George Economides & Anastasio Xepapadeas, 2019. "The effects of climate change on a small open economy," CESifo Working Paper Series 7582, CESifo.
    33. Gibson, John & Heutel, Garth, 2023. "Pollution and labor market search externalities over the business cycle," Journal of Economic Dynamics and Control, Elsevier, vol. 151(C).
    34. Maximilian Auffhammer, 2018. "Quantifying Economic Damages from Climate Change," Journal of Economic Perspectives, American Economic Association, vol. 32(4), pages 33-52, Fall.
    35. William D. Nordhaus, 2011. "Estimates of the Social Cost of Carbon: Background and Results from the RICE-2011 Model," NBER Working Papers 17540, National Bureau of Economic Research, Inc.
    36. Michael Donadelli & Patrick Grüning & Steffen Hitzemann, 2019. "Understanding Macro and Asset Price Dynamics During the Climate Transition," Bank of Lithuania Discussion Paper Series 18, Bank of Lithuania.
    37. Arnaud Costinot & Dave Donaldson & Cory Smith, 2016. "Evolving Comparative Advantage and the Impact of Climate Change in Agricultural Markets: Evidence from 1.7 Million Fields around the World," Journal of Political Economy, University of Chicago Press, vol. 124(1), pages 205-248.
    38. Jensen, Svenn & Traeger, Christian P., 2014. "Optimal climate change mitigation under long-term growth uncertainty: Stochastic integrated assessment and analytic findings," European Economic Review, Elsevier, vol. 69(C), pages 104-125.
    39. Lint Barrage, 2020. "Optimal Dynamic Carbon Taxes in a Climate–Economy Model with Distortionary Fiscal Policy," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 87(1), pages 1-39.
    40. Ruppert, Kilian & Stähler, Nikolai, 2022. "What drives the German current account? Household savings, capital investments and public policies," Economic Modelling, Elsevier, vol. 108(C).
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Gregory Casey & Stephie Fried & Ethan Goode, 2023. "Projecting the Impact of Rising Temperatures: The Role of Macroeconomic Dynamics," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 71(3), pages 688-718, September.
    2. Tol, Richard S.J., 2024. "A meta-analysis of the total economic impact of climate change," Energy Policy, Elsevier, vol. 185(C).
    3. Rising, James A. & Taylor, Charlotte & Ives, Matthew C. & Ward, Robert E.t., 2022. "Challenges and innovations in the economic evaluation of the risks of climate change," LSE Research Online Documents on Economics 114941, London School of Economics and Political Science, LSE Library.
    4. Rudik, Ivan & Lyn, Gary & Tan, Weiliang & Ortiz-Bobea, Ariel, 2021. "Heterogeneity and Market Adaptation to Climate Change in Dynamic-Spatial Equilibrium," SocArXiv usghb, Center for Open Science.
    5. Rising, James A. & Taylor, Charlotte & Ives, Matthew C. & Ward, Robert E.T., 2022. "Challenges and innovations in the economic evaluation of the risks of climate change," Ecological Economics, Elsevier, vol. 197(C).
    6. Drudi, Francesco & Moench, Emanuel & Holthausen, Cornelia & Weber, Pierre-François & Ferrucci, Gianluigi & Setzer, Ralph & Adao, Bernardino & Dées, Stéphane & Alogoskoufis, Spyros & Téllez, Mar Delgad, 2021. "Climate change and monetary policy in the euro area," Occasional Paper Series 271, European Central Bank.
    7. Chang, Jun-Jie & Mi, Zhifu & Wei, Yi-Ming, 2023. "Temperature and GDP: A review of climate econometrics analysis," Structural Change and Economic Dynamics, Elsevier, vol. 66(C), pages 383-392.
    8. Desbordes, Rodolphe & Eberhardt, Markus, 2024. "Climate change and economic prosperity: Evidence from a flexible damage function," Journal of Environmental Economics and Management, Elsevier, vol. 125(C).
    9. Yongyang Cai & William Brock & Anastasios Xepapadeas, 2023. "Climate Change Impact on Economic Growth: Regional Climate Policy under Cooperation and Noncooperation," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 10(3), pages 569-605.
    10. Michael T. Kiley, 2024. "Growth at risk from climate change," Economic Inquiry, Western Economic Association International, vol. 62(3), pages 1134-1151, July.
    11. Schultes, Anselm & Piontek, Franziska & Soergel, Bjoern & Rogelj, Joeri & Baumstark, Lavinia & Kriegler, Elmar & Edenhofer, Ottmar & Luderer, Gunnar, 2020. "Economic damages from on-going climate change imply deeper near-term emission cuts," MPRA Paper 103655, University Library of Munich, Germany.
    12. Joaquín Bernal-Ramírez & Jair Ojeda-Joya & Camila Agudelo-Rivera & Felipe Clavijo-Ramírez & Carolina Durana-Ángel & Clark Granger-Castaño & Daniel Osorio-Rodríguez & Daniel Parra-Amado & José Pulido &, 2022. "Impacto macroeconómico del cambio climático en Colombia," Revista ESPE - Ensayos sobre Política Económica, Banco de la Republica de Colombia, issue 102, pages 1-62, July.
    13. Patrycja Klusak & Matthew Agarwala & Matt Burke & Moritz Kraemer & Kamiar Mohaddes, 2023. "Rising Temperatures, Falling Ratings: The Effect of Climate Change on Sovereign Creditworthiness," Management Science, INFORMS, vol. 69(12), pages 7468-7491, December.
    14. Patrick Gruning, 2022. "Fiscal, Environmental, and Bank Regulation Policies in a Small Open Economy for the Green Transition," Working Papers 2022/06, Latvijas Banka.
    15. Kahn, Matthew E. & Mohaddes, Kamiar & Ng, Ryan N.C. & Pesaran, M. Hashem & Raissi, Mehdi & Yang, Jui-Chung, 2021. "Long-term macroeconomic effects of climate change: A cross-country analysis," Energy Economics, Elsevier, vol. 104(C).
    16. Nguyen, Ha Minh, 2024. "Beyond the annual averages: Impact of seasonal temperature on employment growth in US counties," Journal of Environmental Economics and Management, Elsevier, vol. 125(C).
    17. Francesca Diluiso & Barbara Annicchiarico & Matthias Kalkuhl & Jan C. Minx, 2020. "Climate Actions and Stranded Assets: The Role of Financial Regulation and Monetary Policy," CESifo Working Paper Series 8486, CESifo.
    18. Annicchiarico, Barbara & Di Dio, Fabio & Diluiso, Francesca, 2024. "Climate actions, market beliefs, and monetary policy," Journal of Economic Behavior & Organization, Elsevier, vol. 218(C), pages 176-208.
    19. Yongyang Cai, 2020. "The Role of Uncertainty in Controlling Climate Change," Papers 2003.01615, arXiv.org, revised Oct 2020.
    20. Richard S J Tol, 2018. "The Economic Impacts of Climate Change," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 12(1), pages 4-25.

    More about this item

    Keywords

    Climate policy; Trade balance; Current account; External balances; Carbon emissions intensity;
    All these keywords.

    JEL classification:

    • F18 - International Economics - - Trade - - - Trade and Environment
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:ememar:v:63:y:2024:i:c:s1566014124001110. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/620356 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.