Economic Growth, Trade, And The Environment

Although both China's economy and its foreign trade have experienced a two-decade period of steady high growth rate, the trade-off relationship between environment and sustainable economic development has became an important research agenda, especially the impacts of environmental resources on China's long-term economic growth in an open economy. Under such circumstance, this dissertation aims at making a general analysis on the interaction between economic growth, international trade and environmental protection both theoretically and empirically, and therefore to provide certain proposals in terms of how to establish a reasonable objective environmental protection in China's sustainable economic development strategy.A literature review of both economic growth theory and economic development theory is first made, and also the recent research development on the relationship between economic growth, trade and environment has been summarized. For our theoretical research, the impacts of environmental changes on economic growth can be classified as two types. First, by introducing exhaustible natural resource into production function, we establish a four-section endogenous growth model, which is based on intermediate goods variety expansion growth theory. By using this four-sector growth model, we generally investigate under the condition of exhaustible natural resource, the mechanism how endogenous technological progress promotes long-term economic growth and the macro policy selection of the governments. By solving the"competitive"equilibrium and the social planner's problem, we prove the governments can update the decentralized economy into an optimal growth path by carrying out taxation and subsidy policies. Our second theoretical model analyzes the influences of environmental pollution on sustainable economic development. Since 1980s a so-called endogenous growth theory has quickly development due to the contribution of Romer and Lucas, which emphasized the growth effects of human capital accumulation and technological change. By establishing three growth models all with the restraints of environmental pollution, we make a comparative study on the relationship between environmental protection, physical capital and human capital accumulation, technological change and economic growth. Our conclusion reveals the key roles of R&D and human capital investment in sustainable economic development: on one hand, R&D and human capital investment have become the sources of long-term economic growth; on the other hand, R&D and human capital investment have also been crucial to alleviate the restraints of environmental pollutions due to the fact that cleaner technologies are used to produce human capital and knowledge products. We also extend our theoretical analysis into a multi-sector endogenous growth model for a small open economy, which takes world price as given, to investigate the impacts of foreign trade on both economic growth and environmental quality. Our major conclusion lies in that growth effect of openness essentially depends on the specialization pattern of production. Specifically, if factor resources will be shifted from manufacturing sector to R&D sector due to economic openness, which promotes the innovation process in R&D sector, then foreign trade has a positive growth effect. On the contrary, if R&D sector has to shrink as the result of export expansion, the growth effect of openness will be negative. Therefore, compared with the static trade gain in traditional trade theory, the dynamic gain of trade has been emphasized in our model, such as the efficiency improvement effect in resource allocation and technology spillover effect of openness. It's also pointed out that the influence of trade liberalization on environment and social welfare is actually ambiguous, which depends on the elasticities of supply for the two traded goods, the terms of trade effect on growth, and pollution intensities. Based on our theoretical analysis, empirical research has also been taken by using both the time series data and panel data of China's economy. The famous hypothesis of environmental Kuznets curve(EKC), including the impacts of openness, has been widely tested by using new econometric estimation tools such as unit root test, co-integration, Granger-causality test, VAR estimation, panel data model as well as simultaneous equation estimations. Finally, series of policy suggestions are also provided.