The empirical relationship between openness and environmental pollution in China

By using a vector autoregression (VAR) model, this paper examines the relationship between openness and environmental degradation in China. The empirical results suggest that, during 1981--2008, the long-run equilibrium relation between China's foreign trade, foreign direct investment (FDI) and industrial pollutants can be positive or negative, depending on the pollutants concerned. Therefore it is hard to say whether openness is good or bad for the environment in China. Moreover, a short-run causality test reveals that China's exports expansion leads to an increase in sulphur dioxide (SO₂) emissions, while imports and FDI enlargement result in the growth of solid waste generation. On the other hand, China's control of SO₂ emissions discourages its exports, whereas control of wastewater discharge encourages its imports.