Economic gains and environmental costs from China's exports: Regional inequality and trade heterogeneity

As the world's factory, processing exports comprise a remarkable share of China's total exports. By fully taking the special characteristics of processing trade into account, this paper comprehensively investigates the unbalanced distribution of trade-related economic benefits and environmental costs across different regions in the years of 2007 and 2012. We find a serious regional mismatch between trade-related pollutions and economic gains, with the coastal region gaining more economically but emitting less, whereas the inland regions gain less but emit more. We also conclude that trade-related value added and air pollutions would be overestimated significantly if trade heterogeneity was not correctly captured. Processing exports are cleaner but result in greater regional inequality in terms of trade-related economic gains and environmental costs, although the regional inequality induced by processing exports presented a decreasing trend over the period 2007-2012. The electricity generation sector plays a dominant role in this outcome. Coastal regions should transfer more trade-related economic gains to help sustainable development in inland regions.