International trade remains an essential component in reaching development objectives (Kose et al. 2025). Trade may also help the diffusion of clean practices and technologies (Gourinchas et al. 2024). But it may also increase pollution, going back to a longstanding question in economics regarding its environmental impact (Grossman and Krueger 1991, Copeland and Taylor 1994, Antweiler et al. 2001, Levinson 2009, Taylor 2011, Shapiro and Walker 2018, Shapiro 2021). 

In a recent paper (Carattini et al. 2026), we speak to that debate with new evidence from one of the most consequential development episodes in modern history: China’s leap into world markets in the early 2000s. We trace how international market access affects air pollution through three channels: firms’ own on-site emissions (scope-1), electricity generation (scope-2), and production networks (scope-3). The results suggest a simple but powerful lesson for countries contemplating export-led growth today: openness is not the environmental villain per se; the power mix and the ability to diffuse cleaner techniques are.

What is new and why it matters

The policy question is straightforward: can developing countries reap the dynamism of exports without sacrificing their local environmental quality? We know that China did not – Figure 1 shows that exports and air pollution rose together in China following WTO accession – but we did not know why.

Panel (a) plots trends over time. During the sample period 2000–2007, exports increased sharply, in lock-step with average and median particulate matter concentrations. This plot strongly suggests that China’s export boom coincided with worsening air quality. Panel (b) shows the relationship within provinces and years, after removing province- and year-specific differences. Prefectures with higher exports also tended to have higher particulate matter concentrations. The upward-sloping fitted line indicates a positive correlation between exports and pollution, even after accounting for broad regional and time patterns. The question arises: why did pollution increase with Chinese openness to trade?

Figure 1 Evolution of exports and pollution in China following WTO accession

a) Trends

b) Within-province and within-year correlation

In our study, we leverage China’s WTO-era integration (2000–2007) as a laboratory. Combining satellite-measured particulate matter (PM 2.5) with geo-located factories and coal powerplants, and using foreign-demand shocks as instruments, we separate these three channels, along the three scopes of pollution. The approach avoids relying on potentially strategic or sparse local monitors and lets them zoom into very small geographies.

Three findings from China’s world-market surge

We report three key findings, one for each scope of pollution. First, exporters got cleaner locally (scope-1). When firms start exporting or scale up shipments due to quasi-random demand shocks from abroad, particulate matter in the immediate vicinity of their manufacturing plants falls. The effect is heterogeneous: modest across the interquartile range (about 0.3%) but sizeable for superstar exporters (about 3.4% lower local PM 2.5 at the 99th percentile relative to the median). This is consistent with exporting firms becoming more efficient as they increase production, even if Chinese firms at the time were not specialising in clean products.

Second, coal-heavy grids turned export demand into dirtier air precisely around the location of coal powerplants (scope-2). In the early 2000s, over four-fifths of China’s electricity came from coal, and the grid was fragmented. Where export demand surged most, PM 2.5 around nearby coal power plants rose sharply – by roughly 22% when comparing the grids with the largest to the smallest trade shocks – and substantially more so downwind of these plants. The upshot: the electricity system translated trade-induced production into particulate matter.

Third, the ability to produce with lower pollution spilled upstream (scope-3). Suppliers linked to thriving exporters saw lower PM2.5 around their facilities. In other words, parts of the exporters’ effect travelled through the domestic value chain, damping the overall pollution impact.

Put together, these facts reconcile a seeming paradox. At coarse regional scales, export booms correlate with reduced air quality – a finding previous work has also documented for China. At fine spatial scales, however, exporters become locally cleaner, some of those gains diffuse to their suppliers, but the net effect of trade comes down to composition and technology in the power sector.

Policy implications for countries eyeing export-led growth

The main takeaway is that export-led growth strategies should be accompanied by a focus on renewable energy generation to avoid the downsides of the Chinese experience. The extent to which this lesson applies to each economy aiming to imitate China’s success depends on two main aspects: energy mix and sectoral specialisation.

Our results for the Chinese accession to the WTO are driven by the heavy reliance on coal at the time. While some aspiring countries such as Ethiopia, Kenya, or Uganda have economies that run almost entirely on renewables, Argentina, India, and South Africa, among many others, rely mostly on fossil fuels (Energy Institute 2025). Even present-day China, which has become a global champion of renewable energy, still continues to rely heavily on fossil fuels – at least half of China’s primary energy consumption remains coal based.

When it comes to sectoral specialisation and the composition of demand, many developing economies remain heavily exposed to dirty industries (Yamano and Guilhoto 2020, Dechezleprêtre et al. 2025), and any changes in trade policy towards more openness may lead to more pollution havens, in the absence of accompanying environmental regulation. As for China, it has shifted towards ‘cleaner’ products and even specialises in goods that drive the green transition, such as batteries and electric vehicles, solar panels, and wind turbines. Though the environment at large may be affected by the race for the critical materials necessary for such a transition, surges in foreign demand are these days expected to exert significantly less pressure on local air quality – the focus of our study. China’s “Ecological Civilization” and “Dual Carbon Goals” policy frameworks (e.g. Hanson 2019, Lu et al. 2022), which were some of the driving forces behind China’s transition, can therefore be seen as examples of a successful (if delayed) implementation of the strategy the authors emphasize in this paper to reduce local air pollution.

References

Antweiler, W, B R Copeland and M S Taylor (2001), “Is free trade good for the environment?”, American Economic Review 91(4): 877–908.

Carattini, S, H Huang, F Pisch and T P Singh (2026), “Trade and the scopes of pollution: Evidence from China’s world market integration”, Journal of Environmental Economics and Management, 103378.

Copeland, B R and M S Taylor (1994), “North-South trade and the environment”, Quarterly Journal of Economics 109(3): 755–787.

Dechezleprêtre, A, H Dernis, L Díaz, G Lalanne, S Romaniega Sancho and L Samek (2025), A Comprehensive Overview of the Energy Intensive Industries Ecosystem, OECD Publishing.

Energy Institute (2025), Statistical Review of World Energy 2025.

Gourinchas, P-O, G Schwerhoff and A Spilimbergo (2024), “The energy transition: Technology versus political backlash”, VoxEU.org, 4 April. 

Grossman, G M and A B Krueger (1991), “Environmental Impacts of a North American Free Trade Agreement”, NBER Working Paper 3914.

Hanson, A (2019), “Ecological Civilization in the People’s Republic of China: Values, Action, and Future Need”, ADBI Working Paper 929. Asian Development Bank Institute.

Kose, M A, A Mulabdic and D Vorisek (2025), “Trade policy for developing economies”, VoxEU.org, 18 April. 

Levinson, A (2009), “Technology, international trade, and pollution from US manufacturing”, American Economic Review 99(5): 2177–2192.

Lu, X, D Tong and K He (2022), “China’s carbon neutrality: An extensive and profound systemic reform”, Frontiers of Environmental Science & Engineering 17(2): 14.

Shapiro, J S (2021), “The environmental bias of trade policy”, Quarterly Journal of Economics 136(2): 831–886.

Shapiro, J S and R Walker (2018), “Why is pollution from US manufacturing declining? The roles of environmental regulation, productivity, and trade”, American Economic Review 108(12): 3814–3854.

Taylor, M S (2011), “Buffalo hunt: International trade and the virtual extinction of the North American bison”, American Economic Review 101(7): 3162–3195.