Share:


Impact of trade openness on environment in China

    Wen Jun Affiliation
    ; Hamid Mahmood   Affiliation
    ; Muhammad Zakaria   Affiliation

Abstract

The study investigates the impact of trade openness on pollution in China by applying wavelet-coherence analysis, phase-difference technique and Breitung and Candelon (2006) causality test. The estimated results provide some dynamic association between trade openness and pollutant variables. The results indicate that trade openness has increased pollution in China especially after 2001 when China became member of WTO. It suggests that “pollution haven hypothesis” exists in China. These results imply that trade openness has increased exports which has increased domestic production by increasing the scale of industries, which in turn has increased pollution in the country. The findings of spectral domain causality test show that trade openness causes carbon emission both in short, medium and long runs. It indicates that trade openness forecast carbon emissions in China. The results suggest that China should take suitable measures while following trade openness policy to avoid pollution.

Keyword : China, pollution, trade openness, wavelet, phase-difference, causality

How to Cite
Jun, W. ., Mahmood, H. ., & Zakaria, M. . (2020). Impact of trade openness on environment in China. Journal of Business Economics and Management, 21(4), 1185-1202. https://doi.org/10.3846/jbem.2020.12050
Published in Issue
Jun 19, 2020
Abstract Views
136
PDF Downloads
85
Creative Commons License

This work is licensed under a Creative Commons Attribution 4.0 International License.

References

Aguiar-Conraria, L., Azevedo, N., & Soares, M. J. (2008). Using wavelets to decompose the time-frequency effects of monetary policy. Physica A: Statistical Mechanics and Its Applications, 387(12), 2863–2878. https://doi.org/10.1016/j.physa.2008.01.063

Al-Mulali, U., & Sheau-Ting, L. (2014). Econometric analysis of trade, exports, imports, energy consumption and CO2 emission in six regions. Renewable and Sustainable Energy Reviews, 33, 484–498. https://doi.org/10.1016/j.rser.2014.02.010

Ang, J. B. (2009). CO2 emissions, research and technology transfer in China. Ecological Economics, 68(10), 2658–2665. https://doi.org/10.1016/j.ecolecon.2009.05.002

Antweiler, W., Copeland, B. R., & Taylor, S. (2001). Is free trade good for the environnement. American Economic Review, 91(4), 877–908. https://doi.org/10.1257/aer.91.4.877

Atici, C. (2012). Carbon emissions, trade liberalization, and the Japan–ASEAN inter-action: A groupwise examination. Journal of the Japanese and International Economies, 26(1), 167–178. https://doi.org/10.1016/j.jjie.2011.07.006

Baek, J., Cho, Y., & Koo, W. W. (2009). The environmental consequences of globalization: A countryspecific time-series analysis. Ecological Economics, 68(8–9), 2255–2264. https://doi.org/10.1016/j.ecolecon.2009.02.021

Birdsall, N., & Wheeler, D. (1993). Trade policy and industrial pollutionin Latin America: Where are the pollution havens? Journal of Environment and Development, 2(1), 137–149. https://doi.org/10.1177/107049659300200107

Boashash, B. (2015). Time-frequency signal analysis and processing (2nd ed.). Academic Press.

Boulatoff, C., & Jenkins, M. (2010). Long-term nexus between openness, income and environmental quality. International Advances in Economic Research, 16(4), 410–418. https://doi.org/10.1007/s11294-010-9283-y

Breitung, J., & Candelon, B. (2006). Testing for short- and long-run causality: A frequency-domain approach. Journal of Econometrics, 132(2), 363–378. https://doi.org/10.1016/j.jeconom.2005.02.004

Busse, M., & Koeniger, Y. (2015). Trade and economic growth: A re-examination of the empirical evidence. Economics Bulletin, 35(4), 2862–2876. http://www.accessecon.com/Pubs/EB/2015/Volume35/EB-15-V35-I4-P286.pdf

Chang, S.-C. (2015). The effects of trade liberalization on environmental degradation. Quality & Quantity, 49(1), 235–253. https://doi.org/10.1007/s11135-013-9984-4

Cherniwchan, J. (2017). Trade liberalization and the environment: Evidence from NAFTA and U.S. manufacturing. Journal of International Economics, 105, 130–149. https://doi.org/10.1016/j.jinteco.2017.01.005

Cole, M. A., & Elliott, R. J. R. (2003). Determining the trade-environment composition effect: The role of capital, labour and environmental regulations. Journal of Environmental Economics and Management, 46(3), 363–383. https://doi.org/10.1016/S0095-0696(03)00021-4

Copeland, B. R. (2005). Policy endogeneity and the effects of trade on the environment. Agricultural and Resource Economics Review, 34(1), 1–15. https://doi.org/10.1017/S1068280500001532

Copeland, B., & Taylor, M. (2003). Trade and the environment: Theory and evidence. Princeton University Press. https://doi.org/10.1515/9781400850709

Copeland, B., & Taylor, M. (2004). Trade, growth and the environment. Journal of Economic Literature, 42(1), 7–71. https://doi.org/10.1257/.42.1.7

Copeland, B. R., & Taylor, M. S.(1994). North-south trade and the environment. Quarterly Journal of Economics, 109(3), 755–787. https://doi.org/10.2307/2118421

Crowley, P. M., & Mayes, D. G. (2009). How fused is the euro area core? An evaluation of growth cycle co-movement and synchronization using wavelet analysis. OECD Journal: Journal of Business Cycle Measurement and Analysis, 2008(1), 63–95. https://doi.org/10.1787/jbcma-v2008-art4-en

Damania, R., Fredriksson, P., & List, J. (2003). Trade liberalization, corruption, and environmental policy formation: Theory and evidence. Journal of Environmental Economics and Management, 46(3), 490–512. https://doi.org/10.1016/S0095-0696(03)00025-1

Dean, J. M. (2002). Does trade liberalisation harm the environment? A new test. Canadian Journal of Economics, 35(4), 819–842. https://doi.org/10.1111/0008-4085.00155

Dean, J. M., & Lovely, M. E. (2010). Trade growth, production fragmentation, and China’s environment. In China’s growing role in world trade (NBER Chapters, pp. 429–469). National Bureau of Economic Research, Inc. http://www.nber.org/chapters/c10469.pdf

Dogan, E., & Turkekul, B. (2016). CO2 emissions, real output, energy consumption, trade, urbanization and financial development: Testing the EKC hypothesis for the USA. Environmental Science and Pollution Research, 23(2), 1203–1213. https://doi.org/10.1007/s11356-015-5323-8

Erdogan, A. M. (2014). Bilateral trade and the environment: A general equilibrium model based on new trade theory. International Review of Economics and Finance, 34, 52–71. https://doi.org/10.1016/j.iref.2014.07.003

Ertugrul, H. M., Cetin, M., Seker, F., & Dogan, E. (2016). The impact of trade openness on global carbon dioxide emissions: Evidence from the top ten emitters among developing countries. Ecological Indicators, 67, 543–555. https://doi.org/10.1016/j.ecolind.2016.03.027

Fan, B., Zhang, Y., Li, X. & Miao, X. (2019). Trade openness and carbon leakage: Empirical evidence from China’s industrial sector. Energies, 12(6), 1101. https://doi.org/10.3390/en12061101

Fang, Z., Huang, B., & Yang, Z. (2018). Trade openness and the environmental Kuznets Curve: Evidence from Cities in the People’s Republic of China (Working Paper No. 882). Asian Development Bank Institute. https://www.adb.org/sites/default/files/publication/464116/adbi-wp882.pdf

Farhani, S., Chaibi, A., & Rault, C. (2014). CO2 emissions, output, energy consumption, and trade in Tunisia. Economic Modelling, 38, 426–434. https://doi.org/10.1016/j.econmod.2014.01.025

Feridun, M., Ayadi, F. S., & Balouga, J. (2006). Impact of trade liberalization on the environment in developing countries: The case of Nigeria. Journal of Developing Societies, 22(1), 39–56. https://doi.org/10.1177/0169796X06062965

Ferrantino, M. (1997). International trade, environmental quality and public policy. World Economy, 20(1), 43–72. https://doi.org/10.1111/1467-9701.00057

Frankel, J., & Rose, A. (2005). Is trade good or bad for the environment? Sorting out the causality. The Review of Economics and Statistics, 87(1), 85–91. https://doi.org/10.1162/0034653053327577

Goupillaud, P., Grossmann, A., & Morlet, J. (1984). Cycle-octave and related transforms in seismic signal analysis. Geoexploration, 23(1), 85–102. https://doi.org/10.1016/0016-7142(84)90025-5

Grether, J., Mathys, N. A., & de Melo, J. (2010). Global manufacturing SO2 emissions: Does trade matter? Review of World Economics, 145(4), 713–729. https://doi.org/10.1007/s10290-009-0033-2

Hallett, A. H., & Richter, C. (2008). Have the Eurozone economies converged on a common European cycle? International Economics and Economic Policy, 5(1–2), 71–101. https://doi.org/10.1007/s10368-008-0113-0

He, J. (2009). China’s industrial SO2 emissions and its economic determinants: EKC’s reduced vs. structural model and the role of international trade. Environment and Development Economics, 14(2), 227–262. https://doi.org/10.1017/S1355770X0800452X

Jalil, A., & Feridun, M. (2011). The impact of growth, energy and financial development on the environment in China: A cointegration analysis. Energy Economics, 33(2), 284–291. https://doi.org/10.1016/j.eneco.2010.10.003

Jalil, A., & Mahmud, S. F. (2009). Environment Kuznets curve for CO2 emissions: A cointegration analysis for China. Energy Policy, 37(12), 5167–5172. https://doi.org/10.1016/j.enpol.2009.07.044

Jayanthakumaran, K., & Liu, Y. (2012). Openness and the environmental Kuznets curve: Evidence from China. Economic Modelling, 29(3), 566–576. https://doi.org/10.1016/j.econmod.2011.12.011

Jayanthakumaran, K., Verma, R., & Liu, Y. (2012). CO2 emissions, energy consumption, trade and income: A comparative analysis of China and India. Energy Policy, 42, 450–460. https://doi.org/10.1016/j.enpol.2011.12.010

Jun, W., Zakaria, M., Shahzad, S. J. H., & Mahmood, H. (2018). Effect of FDI on pollution in China: New insights based on wavelet approach. Sustainability, 10(11), 1–20. https://www.mdpi.com/2071-1050/10/11/3859/pdf

Kang, Y.-Q., Zhao, T., & Yang, Y.-Y. (2016). Environmental Kuznets curve for CO2 emissions in China: A spatial panel data approach. Ecological Indicators, 63, 231–239. https://doi.org/10.1016/j.ecolind.2015.12.011

Kanjilal, K., & Ghosh, S. (2013). Environmental Kuznets curve for India: Evidence from tests for cointegration with unknown structural breaks. Energy Policy, 56, 509–515. https://doi.org/10.1016/j.enpol.2013.01.015

Kellenberg, D. K. (2009). An empirical investigation of the pollution haven effect with strategic environment and trade policy. Journal of International Economics, 78(2), 242–255. https://doi.org/10.1016/j.jinteco.2009.04.004

Kukla-Gryz, A. (2009). Economic growth, international trade and air pollution: A decomposition analysis. Ecological Economics, 68(5), 1329–1339. https://doi.org/10.1016/j.ecolecon.2008.09.005

Le, T. H., Chang, Y., & Park, D. (2016). Trade openness and environmental quality: International evidence. Energy Policy, 92, 45–55. https://doi.org/10.1016/j.enpol.2016.01.030

Li, P., & Tu, Y. (2014). The impacts of openness on air quality in China. Environment and Development Economics, 19(2), 201–227. https://doi.org/10.1017/S1355770X13000557

Li, T., Wang, Y., & Zhao, D. (2016). Environmental Kuznets Curve in China: New evidence from dynamic panel analysis. Energy Policy, 91, 138–147. https://doi.org/10.1016/j.enpol.2016.01.002

Li, Z., Xu, N., & Yuan, J. (2015). New evidence on trade-environment linkage via air visibility. Economics Letters, 128, 72–74. https://doi.org/10.1016/j.econlet.2015.01.014

Lin, B. Q., & Sun, C. W. (2010). Evaluating carbon dioxide emissions in international trade of China. Energy Policy, 38(1), 613–621. https://doi.org/10.1016/j.enpol.2009.10.014

Lin, F. (2017). Trade openness and air pollution: City-level empirical evidence from China. China Economic Review, 45, 78–88. https://doi.org/10.1016/j.chieco.2017.07.001

Managi, S., & Kumar, S. (2009). Trade-induced technological change: Analyzing economic and environmental outcomes. Economic Modelling, 26(3), 721–732. https://doi.org/10.1016/j.econmod.2009.02.002

Managi, S., Hibiki, A., & Tsurumi, T. (2009). Does trade openness improve environmental quality? Journal of Environmental Economics and Management, 58(3), 346–363. https://doi.org/10.1016/j.jeem.2009.04.008

Nasir, M., & Rehman, F. (2011). Environmental Kuznets Curve for carbon emissions in Pakistan: An empirical investigation. Energy Policy, 39(3), 1857–1864. https://doi.org/10.1016/j.enpol.2011.01.025

Olayeni, O. R. (2016). Causality in continuous wavelet transform without spectral matrix factorization: Theory and application. Computational Economics, 47(3), 321–340. https://doi.org/10.1007/s10614-015-9489-4

Rua, A. (2013). Worldwide synchronization since the nineteenth century: A wavelet-based view. Applied Economics Letters, 20(8), 773–776. https://doi.org/10.1080/13504851.2012.744129

Shahbaz, M., Khraief, N., Uddin, G. S., & Ozturk, I. (2014). Environmental Kuznets curve in an open economy: A bounds testing and causality analysis for Tunisia. Renewable and Sustainable Energy Reviews, 34, 325–336. https://doi.org/10.1016/j.rser.2014.03.022

Shen, J. (2008). Trade liberalization and environmental degradation in China. Applied Economics, 40(8), 997–1004. https://doi.org/10.1080/00036840600771148

Sousa, J. D., Hering, L., & Poncet, S. (2015). Has trade openness reduced pollution in China? (CEPII Working Paper).

Squalli, J., & Wilson, K. (2011). A new measure of trade openness. The World Economy, 34(10), 1745– 1770. https://doi.org/10.1111/j.1467-9701.2011.01404.x

Sun, H., Clottey, S. A., Geng, Y., Fang, K., & Amissah, J. C. K. (2019). Trade openness and carbon emissions: Evidence from Belt and Road Countries. Sustainability, 11(9), 2682. https://doi:10.3390/su11092682

Wang, T., & Watson, J. (2008). China’s carbon emissions and international trade: Implications for post2012 policy. Climate Policy, 8(6), 577–587. https://doi.org/10.3763/cpol.2008.0531

Weber, C. L., Peters, G. P., Guan, D., & Hubacek, K. (2008). The contribution of Chinese exports to climate change. Energy Policy, 36(9), 3572–3577. https://doi.org/10.1016/j.enpol.2008.06.009

World Bank. (2014). World Development Indicators. http://datatopics.worldbank.org/world-development-indicators/

World Bank. (2018). World Development Indicators. http://datatopics.worldbank.org/world-development-indicators/

Xu, M., Li, R., Crittenden, J. C., & Chen, Y. (2011). CO2 emissions embodied in China’s exports from 2002 to 2008: A structural decomposition analysis. Energy Policy, 39(11), 7381–7388. https://doi.org/10.1016/j.enpol.2011.08.068

Yunfeng, Y. F., & Laike, Y. K. (2010). China’s foreign trade and climate change: A case study of CO2 emissions. Energy Policy, 38(1), 350–356. https://doi.org/10.1016/j.enpol.2009.09.025

Zhang, C., Beck, M. B., & Chen, J. (2013). Gauging the impact of global trade on China’s local environmental burden. Journal of Cleaner Production, 54(1), 270–281. https://doi.org/10.1016/j.jclepro.2013.04.022