The relationship between trade and the environment and their impacts on productivity: Evidence from the U.S. and China

Overcoming the trade-off between environmental protection and economic development has been a particularly important issue for countries around the world. This dissertation explores the relationship between trade and the environment first and tests the "pollution haven hypothesis" from the angles of both developed countries and developing countries. Considering the conclusions from the tests, the impacts of both environmental regulation and trade liberalization on productivity are investigated.;Chapter 1 tests whether stricter environmental regulation shifts the economic activity away. Using U.S. industry-level data, the regression results suggest that stricter environmental regulation in the U.S. leads to an increase in net imports. More skill-intensive industries or industries with higher-level concentration ratios are less sensitive to the environmental regulation. By treating the potential endogeneity problem with an instrumental variable, greater impact of environmental regulation on net imports is observed.;Using China's province-level data, Chapter 2 tests the effect of trade openness on China's environment, specifically SO2 emissions. Several model specifications all yield the same conclusion: increasing level of trade openness tends to decrease SO2 emissions in China. The application of spatial econometric techniques addresses the possible spatial autocorrelation and heterogeneity problems. The results from spatial lag models imply that the environmental impacts of openness are overstated when spatial effects are not considered.;Chapter 3 analyzes the impacts of both environmental regulation and trade liberalization on total factor productivity (TFP) in China using aggregated level data. According to the regression results, stricter environmental regulation and higher trade openness level are associated with higher TFP. Although trade liberalization and environmental regulation may be correlated in several ways, the regression results do not support the existence of severe omitted variable issue if only one factor is considered. The interaction between the two factors proposes a new finding that the impact of environmental regulation is greater when a more open trade policy is adopted.;In sum, these findings address the importance of sustainable development. Complementary policies and regional collaborations are necessary to achieve this goal worldwide.