How Trade Openness Affects PM2.5——Causal Effect Studies Based on Heating Policy Differences between the Two Sides of Huai River

Abstract

Abstract:

This paper estimates the casual effect of trade openness on PM2.5 on the basis of 74 cities' cross-section data. We use the two-stage instrumental variable empirical method raised by Blanchard and Perotti to figure out the reverse causality bias caused by pollution to trade openness. When choosing the IVs for PM2.5 in the first stage regression, we choose the latitude distance between cities and Huai River as the proxy variable of PM2.5 in view of the fact that China's central heating policy applies differently to the two sides of Huai River and coal burning is the main reason of PM2.5. We find that increase in PM2.5 leads to statistically significant decrease in trade-GDP ratio. We use the first stage regression residuals to instrument trade openness in the second stage regression in order to solve the reverse causality effect. The result shows that trade openness is bad for environmental quality. Mechanism analysis shows that exports of pollution intensive sectors lead to the pollution.

Key words: trade openness, PM2.5, instrumental variable, Huai River line

Dai Lihua. How Trade Openness Affects PM2.5——Causal Effect Studies Based on Heating Policy Differences between the Two Sides of Huai River[J]. , 2017, 29(5): 237-245.

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