The effect of environmental regulation on external trade: empirical evidences from Chinese economy

With more voices calling for increasingly stringent environmental regulation, there is also concern about environmental regulations hindering the rapid growth of external trade in China. To identify the impact of environmental regulation on external trade, this research provided an empirical analysis using international trade data from 1985 to 2010. Both feasible generalised least squares (FGLS) and seemingly unrelated regression (SUR) were employed herein. The Standard International Trade Classification (SITC) was introduced to reflect the different categories of products in international trade. The results showed that only the chemical industry might afford significant loss in international trade under strict environmental regulation. Other industries would not suffer, and some would otherwise benefit from environmental regulation. Moreover, environmental regulations proved beneficial for upgrading the structure of Chinese exports. Under strict environmental regulation, net exports of primary products which are often resource-intensive, heavy polluters decreased, while green and high value-added manufactured products were promoted.