Does the Water Rights Trading Policy Improve Water-Use Efficiency? An Environmental Policy Evaluation from China

Abstract

As a crucial basic natural resource, water resources are the cornerstone for sustainable national economic development. This paper takes the 2014 pilot water rights trading policy (WRT) as an entry point and uses a difference-in-differences (DID) model to test the policy effect of WRT on water-use efficiency (WUE) based on panel data for 30 Chinese provinces from 2005 to 2021. The study shows that WRT can significantly improve the regional WUE, and these results remain valid after a series of robustness tests, such as the parallel trend test, placebo test, and PSM-DID. Mechanistic analysis revealed that WRT can produce the Porter effect, which affects the WUE through technological innovation. The results of the heterogeneity analysis based on the synthetic control method (SCM) showed that WRT effectively improved WUE in Jiangxi, Henan, Ningxia, Hubei, and Guangdong, but did not achieve the expected effect in Inner Mongolia or Gansu. This paper provides solid empirical support for assessing the effectiveness of WRT and accelerating the process of establishing a unified national WRT market in China by 2025.