Preferential Trading Agreements and Embodied Carbon Emission Transfers: Effects, Mechanisms, and Implications for Sustainable Development

The pursuit of sustainable development, particularly the mitigation of climate change (SDG 13), necessitates a thorough understanding of the environmental consequences of international trade. The form and pattern of international trade have changed with the rise of preferential trade agreements. The following important question arises: how do preferential trade agreements affect the transfer of trade-embodied carbon emissions? This study establishes a comprehensive bilateral trade database and uses a staggered difference-in-differences model to empirically examine how preferential trade agreements affect embodied carbon emissions. Furthermore, this study explores the underlying mechanisms and investigates heterogeneous effects in diverse contexts. The key findings of this study are as follows. (1) The signing of preferential trade agreements between bilateral trading partners helps reduce the level of carbon embodied in exports. (2) This reduction is achieved by improving production efficiency and facilitating technological spillovers, thereby reducing the carbon footprint associated with export activities. (3) The level of development of bilateral trading countries and the strength of environmental regulations play a role in the heterogeneous impact of preferential trade agreements on embodied carbon emissions. These findings provide critical empirical evidence for designing PTAs that not only facilitate trade but also actively contribute to global climate action and the achievement of broader sustainability objectives.