Restructuring and relocation of polluting industries under air pollution control: Evidence from industrial investment flows between Chinese cities

Abstract

This paper analyzes the impact of the Air Pollution Prevention and Control Action Plan (APPCAP), an environmental policy for particulate matter reduction implemented in 2013, on the restructuring and relocation of Chinese polluting industries. Based on the paid-in capital of newly registered enterprises, we construct the investment flows at the city-industry level to effectively identify the adjustment of polluting industrial structure and the phenomenon of pollution transfer. We estimate the three-dimensional variations in the investment flows, i.e., time (pre-treatment versus post-treatment), region (more stringent regulations versus more lenient ones), and industry (heavily polluting industries versus lightly polluting ones) with the aid of a difference-in-difference-in-differences (DDD) estimation technique. Our empirical results help to understand the comprehensive impact of command-and-control environmental policy in two ways. For one thing, we find the positive effects of APPCAP in curbing the expansion of polluting industries that would emit smoke and dust in production; for another, our results reveal the latent pollution transfer brought by the differentiated regulation intensity of APPCAP implemented in different regions.