Trade and investment liberalisation and industrial per capita emissions in China: 1990 to 2007

It was hypothesised that trade and investment liberalisation in China had a short term negative effect on the environment and a long term positive effect based on the assumption that externality can be internalised and that an environmental Kuznets curve (EKC) exists in China. To test this hypothesis, a modified version of Dean’s (2002) simultaneous model using a sample as a whole, and a disaggregated sample based on above and below the turning point income of EKC was adopted. The results from the overall sample showed that for air pollutant (SO2) and water pollutant (COD), the scale effects outweigh the technique effects, which is evidence for the pollution haven hypothesis. The split sample provided limited support for the EKC hypothesis because at the provincial level, a rising income via an increased level of international trade was associated with falling emissions due to the technique effect, so that rising income among the provinces tends to show a superior performance. The policy implication is that stricter environmental regulations are required for growing incomes because they may encourage better production techniques.