Trade Growth, Production Fragmentation, and China's Environment

Judith M. Dean, Mary E. Lovely

NBER Working Paper No. 13860
Issued in March 2008
NBER Program(s):International Trade and Investment Program

Trade growth for a relatively poor country is thought to shift the composition of industrial output towards dirtier products, aggravating environmental damage. China's rapidly growing trade and serious environmental degradation appear to be no exception. However, much of China's trade growth is attributable to the international fragmentation of production. This kind of trade could be cleaner, if fragmented production occurs in cleaner goods, or if China specializes in cleaner stages of production within these goods. Using Chinese official environmental data on air and water pollution, and official trade data, we present evidence that (1) China's industrial output has become cleaner over time, (2) China's exports have shifted toward relatively cleaner, highly fragmented sectors, and (3) the pollution intensity of Chinese exports has fallen dramatically between 1995 and 2004. We then explore the role of fragmentation and FDI in this trend toward cleaner trade. Beginning with a standard model of the pollution intensity of trade, we develop a model that explicitly introduces production fragmentation into the export sector. We then estimate this model using pooled data on four pollutants over ten years. Econometric results support the view that increased FDI and production fragmentation have contributed positively to the decline in the pollution intensity of China's trade, as has accession to the WTO and lower tariff rates.

download in pdf format
   (266 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w13860

Published: Trade Growth, Production Fragmentation, and China's Environment, Judith M. Dean, Mary E. Lovely. in China's Growing Role in World Trade, Feenstra and Wei. 2010

Users who downloaded this paper also downloaded* these:
Lovely and Popp w14286 Trade, Technology, and the Environment: Why Have Poor Countries Regulated Sooner?
Grossman and Krueger w3914 Environmental Impacts of a North American Free Trade Agreement
Copeland and Taylor w8540 International Trade and the Environment: A Framework for Analysis
Frankel and Rose w9201 Is Trade Good or Bad for the Environment? Sorting Out the Causality
Copeland and Taylor w9823 Trade, Growth and the Environment
NBER Videos

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email:

Contact Us