Trade barrier decrease and environmental pollution improvement: new evidence from China’s firm-level pollution data

Abstract

PurposeTrade and environment are essential issues closely related to the development of the national economy and the improvement of people’s livelihood in the new era. The Report to the 19th National Congress of the Communist Party of China (CPC) listed the construction of a strong trading power as an important part of building a modern economic system and pollution prevention and treatment as one of the three key battles to win the decisive victory of building a moderately prosperous society in all respects. However, the relationship between trade and environmental pollution is still very controversial in the existing literature, and there is a paucity of literature on the relationship between trade and environmental pollution based on micro data.Design/methodology/approachThis paper merged China’s Firm-Level Pollution Database with China’s Industrial Enterprise Database and China’s industry tariff rates. Additionally, by virtue of the quasi-natural experiment of China’s accession to the World Trade Organization (WTO), a difference in difference (DID) model was constructed to alleviate the endogeneity issue.FindingsAccording to the results, the trade barrier decrease (trade liberalization) significantly reduces the intensity of SO2 emissions, a major pollutant of enterprises, as the intensity of SO2 emissions decreased 2.16% for each unit decrease of the trade barrier. The analysis of the mechanisms shows that the SO2 emission intensity of enterprises is mainly due to the decrease of enterprises’ pollution emission rather than the decrease of output, and the decrease of enterprises’ pollution emission is mainly caused by the enterprises’ cleaner production process rather than the end treatment of pollution emission. The decrease of coal use intensity is an important mechanism of the decrease of SO2 emission intensity caused by the decrease of trade barriers. Among the technical effects of the change of the trade barrier affecting enterprises’ pollution emission, biased technical change rather than neutral technical change dominates.Originality/valueThe findings of this paper imply that expanding openness can enhance China’s social welfare not only through the economic growth mechanisms identified in the classical literature, but also through environmental improvements. This provides useful policy insights for promoting the construction of a strong trading power and winning the battle against pollution in the new era.