Trade and the scopes of pollution: evidence from China's world market integration

Stefano Carattini, Hanwei Huang, Tejendra P. Singh and Frank Pisch

CEP Discussion Papers from Centre for Economic Performance, LSE

Abstract: Although the environmental impact of trade has been a long-standing concern, there is still scant evidence on the channels through which international market access affects pollution. We exploit the unique episode of China's world market integration in the early 2000s to provide direct empirical evidence on three such mechanisms, corresponding to each pollution scope: direct pollution at firms' locations (scope-1), indirect pollution from energy generation (scope-2), and indirect pollution from the supply chain (scope-3). We combine granular satellite data on air pollution with detailed information on manufacturing firms and coal power plants, and leverage exogenous foreign demand shocks for identification. Three main findings emerge: exporting firms reduce local pollution; pollution levels around coal power plants rise due to regional export shocks; and upstream suppliers reduce pollution in the face of export demand shocks to downstream firms. Our findings point to China's reliance on coal power plants to fuel its export-driven growth as one of the main drivers of the rise in pollution.

Keywords: trade; pollution; satellite; supply chain; coal power plants; electricity (search for similar items in EconPapers)
Date: 2026-07-08
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