Regional integration and sustainability: enterprise energy efficiency in the China-ASEAN free trade area

Abstract

This study examines the impact of trade liberalization on the transformation of energy consumption among Chinese industrial enterprises, with implications for sustainable economic growth, environmental protection, and energy efficiency. Employing a Difference-in-Differences (DID) approach, we analyze panel data from China’s Industrial Enterprise and Pollution Emission Databases to assess the effects of trade liberalization. To explore underlying mechanisms, we incorporate mediation analysis to disentangle scale and technique effects. Our findings indicate that trade liberalization significantly promotes energy consumption transition by enhancing energy efficiency, primarily through technological upgrading and economies of scale. The regional heterogeneity analysis finds that enterprises in the eastern region, coastal areas, and transportation hubs benefit more from trade liberalization. Industry-level analysis reveals that technology-intensive enterprises and low-energy-consumption industry respond more positively, reflecting higher absorptive capacities for foreign technologies and stronger incentives for innovation. Firm ownership also plays a key role. Individual and corporate enterprises exhibit more substantial responses than state-owned and foreign enterprises, highlighting the importance of managerial flexibility and market-driven incentives in adopting energy-efficient practices. Large enterprises are better able than small and medium-sized enterprises to improve energy efficiency in response to trade liberalization. Overall, the study offers robust evidence that trade liberalization can serve as a catalyst for green industrial upgrading in emerging economies. The results provide actionable insights for policymakers aiming to align trade and environmental objectives in China’s next phase of sustainable development.