Trade Liberalization and China’s Exports of Renewable Energy Products: Evidence from Product Level Data

ABSTRACT

Using a large panel dataset that covers 116 countries and 62 renewable energy products over the period 2000–2012, this study evaluates the effects of trade liberalization on the export expansion of China’s renewable energy products. The results reveal that trade liberalization plays a crucial role in encouraging the exports of renewable energy products. Specifically, tariff reduction, in general, not only encourages the entry into new export markets, but also induces an increase in the volume of renewable energy products already traded. In addition, the positive effects of trade liberalization are more pronounced for foreign-owned exporters than for state-owned or privately-owned exporters. Also, the ways in which trade liberalization promotes exports of renewable energy products differ by the type, destination or origin of the renewable goods being exported.

KEY WORDS:

• exports
• extensive and intensive margins
• renewable energy
• trade liberalization

Funding

This research was supported by the Fundamental Research Funds for the Central Universities and the Research Funds of Renmin University of China (Project No. 14XNJ010).

Notes

^1. Author’s calculation based on the UN Comtrade data.

^2. In this study, we control for industry fixed effects at the four-digit HS level.

^3. Other traditionally used gravity variables, such as China’s GDP and geographic distance, are not included in this study as they will be dropped (due to perfect multicollinearity) when controlling for country and time fixed effects.

^4. Detailed descriptions of the six policy instruments can be found in IEA (2004) and Zhao, Tang, and Wang (2013).

^5. For empirical analysis purposes, any policy that becomes effective after October in a particular year is coded as “a policy that becomes effective in the subsequent year”.

^6. In the logit model, the odds ratio is an exponential function of the estimated logistic coefficients and hence can be computed by exponentiating the logistic coefficients. For instance, the odds ratios of the MFN tariff and the AHS tariff are exp(–2.108) = 0.12 and exp(–2.343) = 0.10, respectively.

^7. As the odds ratio is a monotonically increasing function of the logistic coefficient, it is reasonable to compare the effects of trade liberalization through simply comparing the difference in the logistic coefficient magnitudes.

^8. With respect to wind products, Groba and Cao (2014) also found the effects of tariff reduction to be insignificant and even negative. They attributed this to the larger share of exports to East Asian countries, which apply higher tariffs.