Has Trade Liberalization Promoted Energy Efficiency in Enterprises?

Improving energy efficiency is a way for China’s economy to achieve sustainable development. Using data on listed industrial enterprises in China from 2000 to 2022, we investigate the impact of trade liberalization on the energy efficiency of Chinese firms and its mechanism of action at the micro-firm level. Our findings suggest that trade liberalization has greatly contributed to firms’ energy efficiency and the main conclusions in this paper still hold after a series of robustness tests. Further research shows that two channels that contribute to the improvement of firms’ energy efficiency are the expansion of the firm’s size and the improvement of production efficiency induced by trade liberalization. Another significant route according to which trade liberalization influences energy efficiency improvements by firms is the dynamic decomposition of industrial energy efficiency, which shows that 70.07% of industrial energy efficiency enhancement is due to structural adjustments. The heterogeneity analysis results show that the energy saving impact of trade liberalization is stronger for non-exporting, foreign-funded, growth-oriented enterprises that are based in the eastern region. Our study presents new ideas for the realization of energy conservation and emissions reduction from the perspective of trade liberalization, which is instructive in regard to the improvement of sustainable development of enterprises.