Was Entry into the WTO Worth it: Environmental Consequences of Trade Liberalization

Despite the enormous economic benefit from accession to the WTO, overall welfare of trade liberalization might be compromised since pollution from production also increased. Using plausibly exogeneous tariff reduction on Chinese goods caused by the WTO accession, variation in industry composition across cities, and variation in pollution intensity across industries, I study the effect of trade liberalization on income, pollution and health in China during the period of 2000 to 2005. Using regional tariff shocks as instruments for change in income and pollution level, I show that cities that faced 10% larger GDP per capita increase experienced 6%-7% larger total mortality decline, and regions that faced 10% larger air pollution increase experienced 4%-13% larger total mortality increase. Overall, if all exports were generated from non-polluting industries, total mortality rate would have decline by 3.6% more. However, in terms of overall welfare, the gains from income growth overweight losses from pollution increase.