CHAPTER 13
Linking Trade and the Environment in China
Haixiao Huang

INTRODUCTION

This study simulates the empirical interactions between trade and the environment in China based on a trade and environment model (TEM). The simulation results show that increased trade can lead to increased gross domestic product (GDP), wastewater discharges, levy rates, and foreign direct investment (FDI). An increase in levy rates, a measure of the strictness of environmental policies, may have negative impacts on GDP, industrial wastewater discharges, trade values, and FDI inflows. If levy rates increase at the same rate as trade, wastewater pollution can be reduced and positive GDP growth achieved. However, an increase in levy rates and FDI alone may result in a reduction not only in wastewater pollution but also in GDP levels. Thus, the simulation results suggest that trade is essential to achieving development that balances economic and environmental concerns.
Econometric attempts to model relationships between trade and the environment have been limited, and their results show little evidence that freer trade will bring about significant changes in environmental quality (Antweiler et al. 2001). There is also little evidence that differences in the strictness of environmental policy represent a significant determinant of trade patterns and flows (Huang and Labys 2002; Tobey 1990). The empirical ambiguity is the result of at least two methodological pitfalls:
1. Most studies have tended to ...

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