The Environmental Consequences of Import Source: Theory and Evidence From Chinese Emissions

ABSTRACT Existing studies on trade and the environment typically distinguish only between exports and imports, overlooking the heterogeneity of trading partners. As global trade becomes more complex, standard theories fail to explain how trade with different countries affects environmental outcomes. This paper develops a theoretical model and employs firm‐level data from Chinese manufacturing enterprises, using a Propensity Score Matching‐Difference in Differences (PSM‐DID) approach to identify how the source of imported intermediates affects firms' pollution emissions. We find that importing intermediates from high‐tech countries enhances productivity and promotes greater investment in pollution abatement, leading to a larger reduction in emission intensity compared to imports from low‐tech countries. However, the scale expansion associated with importing offsets these improvements, leaving total emissions largely unchanged. Our results highlight the importance of accounting for the heterogeneity of import source countries when assessing the environmental consequences of international trade.