Structural Form and the Role of International Trade

In this paper, basing on panel data on Chinese provincial level from 1991-2000, we test, firstly, the existence of EKC for industrial SO 2 emission density. Following, we decompose the economical determinants of this SO 2 emission density into: income effect (GDPPC), scale effect (Industrial GDP per km 2) and composition effect (industrial capitalistic ratio). And in the third step, we study the direct and indirect role of international trade intensity ((X+M)/GDP). Instead of a supposed EKC, we find ever-increasing trend in industrial SO 2 emission density with respect to income growth for most Chinese provinces when the three largest cities (Beijing, Tianjin and Shanghai) directly under central government are taken off from our database. Following, confirming Grossman (1995), we succeed in decomposing industrial SO 2 emission density into its three famous economic " effects ". However, different from our expectation, the composition effect, measured by industrial capitalistic ratio K/L in this paper, instead of being a pollution-increasing role as generally accepted idea, turns out to lead industrial SO 2 density to reduce as a technology-reinforcing factor. For the role of trade, besides the positive direct impact on industrial SO 2 density, we find equally some " pollution haven " evidences. In addition, our results show for most provinces, their comparative advantage stays still in labour-intensive sectors, increase in the capitalistic ratio is proven to be environment-friendly through its technological " pollution-abatement " effect until this ratio reach the level of 83333 yuan/person, which can be considered as the threshold to distinguish capital-intensive sector. Due to these different aspect's effects, corresponding to the conclusion of ACT (1998, 2001), the total effect of trade on industrial SO 2 pollution does not turn out to be an important factor for industrial SO 2 emission density. Including all these co-related economic determinants into a more general graphical analysis, we find that, for most provinces whose actual income and capitalistic ratio stay still at moderate level, further income growth and capital accumulation are generally environment-friendly factor in openness process. However, the further enlargement of openness degree will result in environment deterioration for the provinces that have relatively low income and too low or too high capitalistic ratio. The necessary policy to reduce this possible deterioration is to adopt besides the open policy, the complementary policies aiming at reinforcing public consciences on environment quality (through income effect) and encouraging R&D activities to increase technological efficiency …