On 13 October 2015 Ms Ankai Xu defended her PhD thesis in International Economics at the Graduate Institute. The committee was presided by Professor Timothy Swanson and included Professor Richard Baldwin, thesis director, as well as Professor Jaime de Melo from the University of Geneva. Ms Ankai Xu tells us more about her research and findings.

My PhD dissertation looks at the relationship between trade and the environment. The expansion of international trade provides opportunities for economic growth but also causes resource depletion, pollution and climate change problems. While trade economists explore the market forces that drive the trade flows between nations, environmental economists look at circumstances where markets do not work and where institutions and policies come into play. My research combines the two perspectives by looking at three specific situations where trade and environmental issues meet.

The first chapter looks at trade in natural resources and its relation to property rights. In particular, it examines trade in one particular resource – the water embodied in the trade of agriculture products, or “virtual water trade”. I argue that countries with weaker property rights can have an apparent comparative advantage in the trade of water-intensive products because the cost of water does not fully reflect the externality of resource extraction. The second and third chapters use rich Chinese firm-level data to test, respectively, the pollution haven effect and the Porter hypothesis.

I find that environmental regulations can have varying effects on the behaviour of industrial firms: while larger firms in polluting industries are more likely to be driven by differences in environmental stringency across regions, smaller firms are confined within regional economic hubs. On the other hand, the study on environmental regulations and firm productivity provides empirical evidence in support of the Porter hypothesis that tighter environmental regulations can increase productivity under certain circumstances.