Can trade liberalization promote green production? Evidence from China's manufacturing enterprises

Whether international trade causes environmental damage to developing countries has caused widespread concern. We estimate trade liberalization's impact on environmental performance using unique firm-level pollution data in China. By using maximum tariff rates from China's accession agreement as instrumental variables for actual tariff rates, we find that cuts in import tariffs enhance the average SO2 emission. Changes in the composition of products in the polluting and non-polluting industries can explain the substantial increase in the average SO2 emission. However, using multiple firm-level indicators, we demonstrate the existence of the trade-induced technique effect that trade liberalization can promote cleaner production.