Air Pollution, Government Pollution Regulation, and Industrial Production in China

Abstract

Over the last four decades, a severe deterioration in air quality has accompanied China’s rapid industrialization. As a result, the Chinese government has implemented stricter policies and regulation to control air pollution. In this paper, the authors create a measure of government policies on air pollution by tracking all pollution-related government announcements in Chinese newspapers. The authors then use this variable, along with measures of actual pollution, to investigate how air pollution, industrial production, and government policies on air pollution are interrelated. The authors conduct this investigation nationwide, as well as in five large cities in China. A vector autoregression model suggests that, nationwide, government policies seem to decrease air pollution without significantly affecting industrial production. However, the effect appears to be short-lived, dissipating after a few months. In addition, the authors find that the dynamic relationship among these variables differs by city. For instance, following an adverse air quality shock in Beijing, government efforts to control pollution seem to have an ameliorating city-wide effect, decreasing local air pollution in subsequent months. In Shanghai and Guangzhou, while the local government reacts to adverse air pollution shocks, the ameliorating effects are not statistically significant. In Chengdu and Shenyang, the authors detect no significant local government reaction to adverse air pollution shocks. Moreover, in these cities, local government policies do not impart a statistically measurable effect on air pollution.