The debate over trade liberalization mainly comes from doubts about its consequences on economic growth and the environment. This study directly investigates such question in the context of China and assesses several candidate explanations for the underlying channels using detailed county-level data from 1998 to 2008. We instrument county-level trade shocks by assembling the change in product-level tariffs and the county’s industrial structure. It is found that tariff reduction on inputs promotes economic growth and decreases the pollution levels, while tariff reduction on outputs harms the environment. We highlight the mechanisms of the impacts on emission, involving (i) scale, composition, and technique effects, and (ii) composition of tariff reductions. The findings reveal a...[ Read more ]

The debate over trade liberalization mainly comes from doubts about its consequences on economic growth and the environment. This study directly investigates such question in the context of China and assesses several candidate explanations for the underlying channels using detailed county-level data from 1998 to 2008. We instrument county-level trade shocks by assembling the change in product-level tariffs and the county’s industrial structure. It is found that tariff reduction on inputs promotes economic growth and decreases the pollution levels, while tariff reduction on outputs harms the environment. We highlight the mechanisms of the impacts on emission, involving (i) scale, composition, and technique effects, and (ii) composition of tariff reductions. The findings reveal a weak pattern of the Pollution Haven Hypothesis. This work further evaluates the gains on economy and environment from the tariff reform in China.