Openness and the Environmental Kuznets Curve: Evidence from China

This paper investigates the relationship in China between trade, growth and emissions using provincial-level data for water (chemical oxygen demand: COD) and air (sulphur dioxide: SO2). It analyses the period 1990–2007 in three steps. First, the income ‘turning point’ of the Environmental Kuznets Curve (EKC) has been estimated using quadratic log function and obtained a turning point consistent with existing studies. Second, adopting Dean's (2002) simultaneous equations system, the relationships between trade, growth and emissions has been estimated and the results confirm the dominance of scale effects over technique effects. Third, the estimated per capita turning point for EKC is used to split the provincial industrial database into two groups (below and above turning point income) and simultaneous equations are estimated separately for them. The split sample provided limited support for the trade-induced emissions hypothesis for COD, but not for SO2. At the provincial level rising incomes via increased levels of international trade were associated with falling COD due to the technique effect, so that rising incomes among the provinces tended to be associated with lower emissions. Stricter environmental regulations are required for growing incomes because they may encourage better production techniques.