Trade policy uncertainty and pollution emissions of export enterprises—The case of China‐ASEAN free trade area

Kexuan Zhou, Linhui Yu, Xinlin Jiang and Sanjay Kumar

Review of International Economics, 2023, vol. 31, issue 5, 1719-1750

Abstract: We propose a theoretical framework to illustrate the impact of trade policy uncertainty on pollution emissions of export enterprises and the underlying mechanism. The magnitudes of the effect and the proposed channels are empirically estimated using the case of the formal establishment of China‐ASEAN free trade area and sulfur dioxide (SO2) emission intensity as a measure of pollution emission intensity. Our analysis relies on high‐precision micro enterprise‐level data and the difference‐in‐difference methodology. The results show that China‐ASEAN free trade area effectively reduced the trade policy uncertainty and the SO2 emission intensity of Chinese enterprises exporting to ASEAN. The study also shows that the export enterprises of different trade modes, ownership types, regions, factor intensity, and pollution intensity industries show significant heterogeneity in the extent of the reduction in the SO2 emission intensity. The mechanism test reveals that the trade policy uncertainty decline mainly reduces the emission intensity of SO2 by raising the competitive and learning effects. The contribution of the learning effect is higher and accounts for 32.54% of the total effect. In addition, through dynamic decomposition at the industry level, we found that the contribution rate of resource allocation effect among enterprises in reducing the total emission intensity of SO2 of enterprises exporting to ASEAN at the industry level is 52.22%. This effect is perhaps the most significant way trade policy uncertainty impacts the SO2 pollution emission intensity.

Date: 2023
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