Input-Output Analysis of the Impact of Environmental Regulation on Chinese Industries

DONG Minjie1 and LIANG Yongmei2

1Graduate School of the Chinese Academy of Social Sciences (CASS), China
2 Institute of Industrial Economics, CASS, China
Abstract: In this paper, we attempted to calculate the impact of environmental regulation on the international competitiveness of China’s industries. Calculations are based on the

input-output model that incorporates pollution control costs. We took enterprises’ pollution control costs as the substitute variable for environmental regulation and price changes to measure the impact on international competitiveness for all sectors. Our studies reported three findings. First, price rises caused by pollution control costs were not more than 4 per cent in the manufacturing and trade sectors in 2007. Second, although the charging rate on pollutant discharge has become increasingly higher since 2003, the resultant price rise is only around 0.5 per cent across all sectors. Third, the impact brought about by increasingly stronger environmental regulation is limited and the resultant price rise does not exceed

2 per cent. These findings indicate that the impact of environmental regulation on China’s trade sectors is affordable. Therefore, it is needless to worry that environmental regulation will weaken the international competitiveness of Chinese products.

Key words: environmental regulation, input-output model, price level, export competitiveness

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