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Trade Openness and Carbon Leakage: Empirical Evidence from China’s Industrial Sector

Bin Fan (), Yun Zhang (), Xiuzhen Li () and Xiao Miao ()
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Bin Fan: Department of Dermatology, Yueyang Hospital of Integrated Traditional Chinese and Western Medicine, Shanghai University of Traditional Chinese Medicine, Shanghai 200437, China
Yun Zhang: School of Finance, Shanghai Lixin University of Accounting and Finance, Shanghai 201620, China
Xiuzhen Li: School of Economics and Trade, Shanghai Lixin University of Accounting and Finance, Shanghai 201620, China
Xiao Miao: Department of Dermatology, Yueyang Hospital of Integrated Traditional Chinese and Western Medicine, Shanghai University of Traditional Chinese Medicine, Shanghai 200437, China

Energies, 2019, vol. 12, issue 6, 1-16

Abstract: China is a large import and export economy in global terms, and the carbon dioxide emissions and carbon leakage arising from trade have great significance for China’s foreign trade and its economy. On the basis of trade data for China’s 20 industrial sectors, we first built a panel data model to test the effect of trade on carbon dioxide emissions and the presence of carbon leakage for all industrial sectors. Second, we derived a single-region input–output model for open economies based on the industrial sectors’ diversity and carbon dioxide emissions, and performed an empirical test. We estimated the net carbon intensity embodied in export, which is 0.237tCO 2 /ten thousand RMB, to divide all sectors (ACSs) into high-carbon sectors (HCSs) and low-carbon sectors (LCSs). The results show that higher trade openness leads to a reduction in the intensity of CO 2 emissions and gross emissions and that there are obvious structural differences in different sectors with different carbon emission intensity. The coefficient of trade openness for LCSs is −0.073 and is statistically significant at the 1% level, so higher trade openness for LCSs leads to a reduction in the CO 2 emissions intensity. However, the coefficient for HCSs is 0.117 and is statistically significant at the 10% level, indicating that higher trade openness increases the CO 2 emissions’ intensity for HCSs. The difference is that higher trade openness in LCSs can help reduce the CO 2 emissions’ intensity without the problem of carbon leakage and with the existence of the environmental Kuznets curve (EKC), whereas there is no EKC for HCSs and carbon leakage may happen. We introduced dummy variables and found that a “pollution haven” effect exists in HCSs. The test results in HCSs and LCSs are exactly the opposite of each other, which shows that the carbon leakage of ACSs cannot be determined. The message that can be drawn for policy makers is that China does not need to worry about the adverse impact on the environment of trade opening up and should, in fact, increase the opening up of trade, while becoming acclimatized to environmental regulation of a new trade mode and new standards. This will help amplify the favorable impact of trade opening up on the environment and improve China’s international reputation. The policies related to trade should encourage structural adjustment between the sectors via the formulation of differential policies and impose a restraint on sectors that have high levels of CO 2 emissions embodied in export.

Keywords: CO 2 emissions embodied in trade; trade openness; carbon leakage; EKC; industrial sector (search for similar items in EconPapers)
JEL-codes: Q Q0 Q4 Q40 Q41 Q42 Q43 Q47 Q48 Q49 (search for similar items in EconPapers)
Date: 2019
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