International trade, FDI (foreign direct investment) and embodied CO2 emissions: A case study of Chinas industrial sectors

- We propose a comprehensive, multiplicative EKC model.
- We use 18 industries' FDI and trade data to verify their impacts.
- We improve the EAI assumption by adopting an average emission factor of 10 importing countries to replace imported goods' emission factors.

This paper calculates CO2 emissions embodied in China's international trade using an input-output analysis, for the period 2000-2010. Based on industrial panel data, the two-step GMM estimation is used to test the impacts of FDI, trade openness, exports, imports and per capita income on CO2 emissions. The results suggest that: (1) China's growing trade surplus is one of the important reasons for the rapidly rising CO2 emissions; (2) large FDI inflows further aggravate China's CO2 emissions; and (3) the industrial sector's per capita income and CO2 emission relationship show inverted-U environmental Kuznets curve. Therefore, in order to achieve environmentally sustainable development of the economy, China should make efforts to transform its trade growth mode, adjust foreign investment structure, strengthen energy efficiency and develop a low-carbon economy.