Assessing the effects of trade openness and economic growth on environmental pollution in China and policy implications for sustainability: a nonlinear analysis

Evaluating the environmental performance of trade openness is essential for achieving sustainable development pathway. Many studies highlight the direct influence of trade openness on environmental degeneration while neglecting its indirect effects through economic growth, leading to possible misassessments of sustainability. To remedy this deficiency, this paper analyses provincial data from China spanning the period 2000–2017 to explore both the direct and indirect environmental influence of trade openness concerned with economic growth by introducing a generalized panel smooth transition regression model with cross-sectional dependence and intercept heterogeneity tests, nonlinear unit root and cointegration tests and non-parametric kernel density estimation. The results show that the direct impact of trade openness on environmental quality shifts dynamically from positive to negative. The indirect effect indicates that trade openness mitigates environmental pollution by acting on economic growth. The total impact of trade openness has a “step-shaped” transition pattern, revealing threshold feature. When trade openness is low, there is a positive effect on environmental quality, but this effect gradually weakens as trade openness cumulatively exceeds 3.878. Our findings offer new evidence for evaluating the risk of pollution resulting from trade openness and provide policy suggestions for China and other countries to realize an environmental and economic win–win advancement.