Environmental good exports and green total factor productivity: Lessons from China

Abstract Trade liberalization for environmental goods (EG) could pave the way for a “win‐win” scenario for both the economy and the environment. This study examines the impact of environmental good exports on the comprehensive economic development and environmental protection index, green total factor productivity (GTFP), using a Chinese city‐level panel dataset from 2003 to 2015. Overall, our findings indicate that EG exports are detrimental to China's green development. Particularly, traditional EGs intended to address environmental concerns significantly impede GTFP, whereas environmentally preferable products with cleaner product life cycles have no such effect. Furthermore, EG exports do not significantly reduce conventional TFP without accounting for energy and pollution, implying that the loss of GTFP is primarily due to environmental factors. When GTFP is disaggregated into green efficiency change (GEC) and green technology change (GTC), EG exports can increase GEC while reducing GTC. However, once the value of EG exports surpasses a certain threshold, EG exports raise GTC and GTFP. Furthermore, regional resource misallocation, environmental regulation, and absorptive capacity can all help to mitigate the negative EG‐GTFP relationship. This study could be useful for stakeholders interested in leveraging synergies between the economy and the environment by participating in global EG supply chains.