Trade Liberalization and Pollutant Emissions: Micro Evidence from Chinese Manufacturing Firms

Trade liberalization has enabled China to become a global manufacturing hub. However, an increasing focus on pollutant emissions has accompanied China’s rapid economic growth. This paper uses the Annual Survey of Industrial Firms and the Annual Energy Survey of Industrial Firms from 1998 to 2007 to identify the effects of trade liberalization in final goods and intermediate goods on pollutant emissions of Chinese manufacturing enterprises. The difference-in-difference method is used to analyze the data, with China’s accession to the World Trade Organization serving as an exogenous policy shock that brought trade liberalization. The paper’s findings indicate the following: (1) Trade liberalization has reduced the tariffs on final goods, which has led to a notable reduction in the intensity of pollutant emissions from Chinese manufacturing firms. (2) Trade liberalization in intermediate goods, meanwhile, has led to a significant increase in the pollutant emission intensity of manufacturing firms. However, the emission reduction effect observed in final goods is more pronounced. (3) The difference-in-difference-in-difference method was used to examine the heterogeneity of the pollutant emission effect of trade liberalization across manufacturing firms. Our analysis revealed that trade liberalization has significantly enhanced the pollutant emission intensity of state-owned enterprises while exhibiting no significant effect on foreign invested enterprises. Furthermore, trade liberalization has intensified pollutant emissions among exporting firms.