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Trade and the Scopes of Pollution: Evidence from China's World Market Integration

Author

Listed:
  • Carattini, Stefano
  • Huang, Hanwei
  • Pisch, Frank
  • Singh, Tejendra Pratap

Abstract

Although the environmental impact of trade has been a long-standing concern, there is still only scant evidence on the channels through which international market access affects pollution. In this paper, we exploit the unique episode of China's world market integration in the early 2000s to provide direct empirical evidence on three such mechanisms. We combine granular satellite data on air pollution with detailed information on manufacturing firms and coal power plants, and leverage exogenous foreign demand shocks for identification. Three main findings emerge: exporting firms reduce local pollution (scope-1); pollution levels around coal power plants rise due to regional export shocks (scope-2); and upstream suppliers reduce pollution in the face of export demand shocks to downstream firms (scope-3). Our findings point to China's reliance on coal power plants to fuel its export-driven growth as one of the main drivers of the rise in pollution.

Suggested Citation

  • Carattini, Stefano & Huang, Hanwei & Pisch, Frank & Singh, Tejendra Pratap, 2025. "Trade and the Scopes of Pollution: Evidence from China's World Market Integration," Economics Working Paper Series 2504, University of St. Gallen, School of Economics and Political Science.
    • Handle: RePEc:usg:econwp:2025:04
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    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • F18 - International Economics - - Trade - - - Trade and Environment
    • F64 - International Economics - - Economic Impacts of Globalization - - - Environment
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling

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