Air Pollution Leakage Embodied in International Trade: Foreign–Investment–Contribution–Based Accounting and Structural Decomposition Analysis

Abstract

Beyond carbon leakage, companies' relocation also drives severe air pollution leakage, frequently overlooked yet causing localized health damage in destination countries. Following the principle of common but differentiated responsibilities, we propose Foreign–Investment–Contribution-Based Accounting (FICBA) to delineate national responsibilities. Unlike Production-Based Accounting (PBA) and Consumption-Based Accounting (CBA), which represent extremes, FICBA rewards foreign investment's economic contribution in host countries by sharing the Balance of Emissions Embodied in Trade (BEET, redistributed as BEET+ and BEET−). Additionally, using Structural Decomposition Analysis (SDA), we categorize industries and identify the influence of three key factors—technological levels, industrial structures, and trade scales—on air pollution emission changes over the past twenty years.Under FICBA, countries with negative total BEET values, like China and India, bear lower pollution emission responsibility than PBA but higher responsibility than CBA, reflecting the redistribution of additional emissions based on economic contribution. Conversely, countries with positive total BEET values, like the United States and Japan, experience the opposite. This indicates FICBA can incentivize industrial countries to assume greater responsibility than emerging economies. Consequently, we argue FICBA is an efficient policy promoting global pollution reduction, curbing health damage, and fostering economic development. Moreover, FICBA's responsibility differences with CBA are significantly smaller than those with PBA. According to SDA results, for countries with negative total BEET, enhancing the secondary industry's technological level and restructuring the industry can reduce air pollutants embodied in trade, benefiting development and modernization.