Hostname: page-component-76fb5796d-45l2p Total loading time: 0 Render date: 2024-04-28T12:52:31.085Z Has data issue: false hasContentIssue false
  • English
  • Français

How does trade policy uncertainty affect firms’ pollution emissions? Theory and evidence from China

Published online by Cambridge University Press:  22 February 2024

Xi Lin ,
Geng Huang  and
Ling-Yun He
Xi Lin
Affiliation:
School of Economics and Statistics, Guangzhou University, Guangzhou, China
Geng Huang
Affiliation:
School of Economics, Jinan University, Guangzhou, China
Ling-Yun He*
Affiliation:
School of Economics, Jinan University, Guangzhou, China
*
Corresponding author: Ling-Yun He; Email: lyhe@amss.ac.cn
Get access Rights & Permissions [Opens in a new window]

Abstract

The literature investigates trade-environment relationship at the firm level, but does not focus on the environmental effect of trade policy uncertainty. In the context of de-globalization and Sino-US trade friction, trade policy uncertainty significantly increases. How does trade policy uncertainty affect firms’ pollution emissions? In this study, we incorporate energy, pollution, and trade policy uncertainty into Melitz’s (2003) framework and construct a theoretical model to reveal the relationship between trade policy uncertainty and pollution emissions. Then, we employ the event that the USA granted permanent normal trade relationship to China as a quasi natural experiment. We use difference-in-difference-in-difference model and the data of Chinese manufacturing firms for empirical analysis. Our results indicate that the decrease in trade policy uncertainty reduces emission intensity of exporting firms, but has no significant impact on emission levels. Given that these firms do not aggravate emission levels under the condition of expanding output scale, we conclude that the decrease in trade policy uncertainty can improve environmental performance. Mechanism analysis shows an interesting finding that the decrease in trade policy uncertainty reduces emission intensity mainly by improving energy efficiency rather than improving abatement technology and optimizing energy structure. In addition, pollution reductions mainly occur in pollution-intensive and capital-intensive industries as well as coastal regions. Altogether, this study contributes to the literature on trade-environment relationship and trade policy uncertainty.

Keywords

Trade policy uncertaintypollution emissionsenergy efficiencyheterogeneous firms
Type
Articles
Information
Macroeconomic Dynamics , First View , pp. 1 - 33
Copyright
© The Author(s), 2024. Published by Cambridge University Press

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Antweiler, W., Copeland, B. R. and Taylor, M. S. (2001) Is free trade good for the environment? American Economic Review 91(4), 877–908.CrossRefGoogle Scholar
Banerjee, S. N., Roy, J. and Yasar, M. (2021) Exporting and pollution abatement expenditure: Evidence from firm-level data. Journal of Environmental Economics and Management 105, 102403.CrossRefGoogle Scholar
Barrows, G. and Ollivier, H. (2018) Cleaner firms or cleaner products? How product mix shapes emission intensity from manufacturing. Journal of Environmental Economics and Management 88, 134–158.CrossRefGoogle Scholar
Barrows, G. and Ollivier, H. (2021) Foreign demand, developing country exports, and CO2 emissions: Firm-level evidence from India. Journal of Development Economics 149, 102578.CrossRefGoogle Scholar
Bastos, P., Silva, J. and Verhoogen, E. (2018) Export destinations and input prices. American Economic Review 108(2), 353–392.CrossRefGoogle Scholar
Benguria, F., Choi, J., Swenson, D. L. and Xu, M. (2022) Anxiety or pain? The impact of tariffs and uncertainty on Chinese firms in the trade war. Journal of International Economics 137, 103608.CrossRefGoogle Scholar
Brandt, L., Van Biesebroeck, J., Wang, L. and Zhang, Y. (2017) WTO accession and performance of Chinese manufacturing firms. American Economic Review 107(9), 2784–2820.CrossRefGoogle Scholar
Brucal, A., Javorcik, B. and Love, I. (2019) Good for the environment, good for business: Foreign acquisitions and energy intensity. Journal of International Economics 121(6), 103247.CrossRefGoogle Scholar
Bustos, P. (2011) Trade liberalization, exports and technology upgrading: Evidence on the impact of mercosur on Argentinian firms. American Economic Review 101(1), 304–340.CrossRefGoogle Scholar
Cherniwchan, J. (2017) Trade liberalization and the environment: Evidence from NAFTA and U.S. manufacturing. Journal of International Economics 105, 130–149.CrossRefGoogle Scholar
Cherniwchan, J., Copeland, B. R. and Taylor, M. S. (2017) Trade and the environment: New methods, measurements, and results. Annual Review of Economics 9(1), 59–85.CrossRefGoogle Scholar
Copeland, B. R. and Taylor, M. S. (1994) North-South trade and the environment. The Quarterly Journal of Economics 109(3), 755–787.CrossRefGoogle Scholar
Cui, J., Lapan, H. and Moschini, G. (2016) Productivity, export, and environmental performance: Air pollutants in the United States. American Journal of Agricultural Economics. 98(2), 447–467.CrossRefGoogle Scholar
Cui, J., Tam, O. K., Wang, B. and Zhang, Y. (2020) The environmental effect of trade liberalization: Evidence from China’s manufacturing firms. The World Economy 43(12), 3357–3383.CrossRefGoogle Scholar
Dai, M., Maitra, M. and Yu, M. (2016) Unexceptional exporter performance in China? The role of processing trade. Journal of Development Economics 121, 177–189.CrossRefGoogle Scholar
Feenstra, R. C., Romalis, J. and Schott, P. K. (2002). US Imports, Exports and Tariff Data, 1989-2001. 9387, NBER, Working Paper.Google Scholar
Feenstra, R. C., Li, Z. and Yu, M. (2014) Exports and credit constraints under incomplete information: Theory and evidence from China. Review of Economics and Statistics 96(4), 729–744.CrossRefGoogle Scholar
Feng, L., Li, Z. and Swenson, D. L. (2017) Trade policy uncertainty and exports: Evidence from China’s WTO accession. Journal of International Economics. 106, 20–36.CrossRefGoogle Scholar
Forslid, R., Okubo, T. and Ulltveit-Moe, K. H. (2018) Why are firms that export cleaner? International trade, abatement and environmental emissions. Journal of Environmental Economics and Management 91, 166–183.CrossRefGoogle Scholar
Frankel, J. and Rose, A. (2005) Is trade good or bad for the environment? Sorting out the causality. Review of Economics and Statistics 87(1), 85–91.CrossRefGoogle Scholar
Grossman, G. M. and Krueger, A. B. (1991) Environmental impacts of a North American free trade agreement. 3914, NBER Working Paper.CrossRefGoogle Scholar
Gutiérrez, E. and Teshima, K. (2018) Abatement expenditures, technology choice, and environmental performance: evidence from firm responses to import competition in Mexico. Journal of Development Economics 133, 264–274.CrossRefGoogle Scholar
Handley, K. (2014) Exporting under trade policy uncertainty: Theory and evidence. Journal of International Economics 94(1), 50–66.CrossRefGoogle Scholar
Handley, K. and Limão, N. (2015) Trade and investment under policy uncertainty: Theory and firm evidence. American Economic Journal: Economic Policy 7(4), 189–222.Google Scholar
Handley, K. and Limão, N. (2017) Policy uncertainty, trade and welfare: Theory and evidence for China and the U.S. American Economic Review 107(9), 2731–2783.CrossRefGoogle Scholar
He, G., Wang, S. and Zhang, B. (2020a) Watering down environmental protection in China. The Quarterly Journal of Economics 135(4), 2135–2185.CrossRefGoogle Scholar
He, L.-Y. and Huang, G. (2021) How can export improve firms’ energy efficiency? The role of innovation investment. Structural Change and Economic Dynamics 59, 90–97.CrossRefGoogle Scholar
He, L.-Y. and Huang, G. (2022) Are China’s trade interests overestimated? Evidence from firms’ importing behavior and pollution emissions. China Economic Review 71, 101738.CrossRefGoogle Scholar
He, L.-Y., Lin, X. and Liu, Q. (2020b) How did free trade reshape the transitional China? Evidence from heterogeneous exporters and firm-level pollution emissions. Emerging Markets Finance and Trade 56(8), 1651–1676.CrossRefGoogle Scholar
He, L.-Y., Lin, X. and Zhang, Z. X. (2020c) The impact of de-globalization on China’s economic transformation: Evidence from manufacturing export. Journal of Policy Modeling. 42(3), 628–660.CrossRefGoogle Scholar
Holladay, J. S. (2016) Exporters and the environment. The Canadian Journal of Economics/Revue canadienne d’économique 49(1), 147–172.CrossRefGoogle Scholar
Huang, G., He, L.-Y. and Lin, X. (2022) Robot adoption and energy performance: Evidence from Chinese industrial firms. Energy Economics 107, 105837.CrossRefGoogle Scholar
Imbruno, M. and Ketterer, T. D. (2018) Energy efficiency gains from importing intermediate inputs: Firm-level evidence from Indonesia. Journal of Development Economics. 135, 117–141.CrossRefGoogle Scholar
Kwon, O., Zhao, H. and Zhao, M. Q. (2023) Global firms and emissions: Investigating the dual channels of emissions abatement. Journal of Environmental Economics and Management 118, 102772.CrossRefGoogle Scholar
Lin, F. (2017) Trade openness and air pollution: City-level empirical evidence from China. China Economic Review 45, 78–88.CrossRefGoogle Scholar
Lin, X. and He, L.-Y. (2023a) The more the merrier? Evidence from firm-level exports and environmental performance in China. Environmental and Resource Economics 84(1), 125–172.CrossRefGoogle Scholar
Lin, X. and He, L.-Y. (2023b) Going global and pollution in home country: Evidence from Chinese industrial firms. Economics of Transition and Institutional Change 31(4), 1135–1174.CrossRefGoogle Scholar
Liu, M., Zhang, B. and Liao, X. (2022) Can trade liberalization promote green production? Evidence from China’s manufacturing enterprises. Journal of Asian Economics 79, 101369.CrossRefGoogle Scholar
Liu, M., Shadbegian, R. and Zhang, B. (2017) Does environmental regulation affect labor demand in China? Evidence from the textile printing and dyeing industry. Journal of Environmental Economics and Management 86, 277–294.CrossRefGoogle Scholar
Liu, M., Tan, R. and Zhang, B. (2021) The costs of “blue sky”: Environmental regulation, technology upgrading, and labor demand in China. Journal of Development Economics 150, 102610.CrossRefGoogle Scholar
Liu, Q. and Ma, H. (2020) Trade policy uncertainty and innovation: Firm level evidence from China’s WTO accession. Journal of International Economics 127, 103387.CrossRefGoogle Scholar
Lu, Y. and Yu, L. (2015) Trade liberalization and markup dispersion: Evidence from China’s WTO accession. American Economic Journal: Applied Economics. 7(4), 221–253.Google Scholar
Melitz, M. J. (2003) The impact of trade on intra-industry reallocations and aggregate industry productivity. Econometrica 71(6), 1695–1725.CrossRefGoogle Scholar
Pierce, J. R. and Schott, P. K. (2016) The surprisingly swift decline of US manufacturing employment. American Economic Review 106(7), 1632–1662.CrossRefGoogle Scholar
Pierce, J. R. and Schott, P. K. (2018) Investment responses to trade liberalization: Evidence from U.S industries and plants. Journal of International Economics 115, 203–222.CrossRefGoogle Scholar
Richter, P. M. and Schiersch, A. (2017) CO2 emission intensity and exporting: Evidence from german firm-level data. European Economic Review 98, 373–391.CrossRefGoogle Scholar
Rodrigue, J., Sheng, D. and Tan, Y. (2022a) Exporting, abatement, and firm-level emissions: Evidence from China’s accession to the WTO. The Review of Economics and Statistics 1–45. https://doi.org/10.1162/rest_a_01194. CrossRefGoogle Scholar
Rodrigue, J., Sheng, D. and Tan, Y. (2022b) The curious case of the missing Chinese emissions. Journal of the Association of Environmental and Resource Economists 9(4), 755–805.CrossRefGoogle Scholar
Roy, J. and Yasar, M. (2015) Energy efficiency and exporting: Evidence from firm-level data. Energy Economics 52, 127–135.CrossRefGoogle Scholar
Shapiro, J. S. (2021) The environmental bias of trade policy. The Quarterly Journal of Economics 136(2), 831–886.CrossRefGoogle Scholar
Shapiro, J. S. and Walker, R. (2018) Why is pollution from US manufacturing declining? The roles of environmental regulation, productivity, and trade. American Economic Review 108(12), 3814–3854.CrossRefGoogle Scholar
Shi, X. and Xu, Z. (2018) Environmental regulation and firm exports: Evidence from the eleventh five-year plan in China. Journal of Environmental Economics and Management 89, 187–200.CrossRefGoogle Scholar
Yu, M. (2015) Processing trade, tariff reductions and firm productivity: Evidence from Chinese firms. The Economic Journal 125(585), 943–988.CrossRefGoogle Scholar
Zhang, B., Chen, X. and Guo, H. (2018) Does central supervision enhance local environmental enforcement? Quasi-experimental evidence from China. Journal of Public Economics 164, 70–90.CrossRefGoogle Scholar