Abstract
We assess the effectiveness of China’s Two Control Zones (TCZ) policy, an environmental policy that tightens the control of acid rain and the emission of sulfur dioxide (SO2) in targeted areas. To identify the effect of the policy on industrial activities, we use the difference-in-differences (DID) method to study industry-level activities in China’s prefectures based on a unique firm-level data set covering the period from 1999–2009. We find that stricter environmental regulation led to a lower level of polluting industrial activities in TCZ prefectures, which was associated with more closures of polluting firms in targeted prefectures and more new polluting firms in non-targeted locations. In addition, our findings suggest that the TCZ policy had more pronounced effects in the coastal areas and became more effective after China changed its assessment criteria for the performance of local officials in the late 2000s.
Highlights
During the last three decades, China has witnessed impressive economic growth, along with rapid industrialization and urbanization
Deteriorating air quality has led to pollution-related diseases, such as lung cancer, chronic obstructive pulmonary disease (COPD), ischemic heart disease (IHD), and stroke [1,2]
According to the forecast of the Organization of Economic Cooperation and Development (OECD), greenhouse gas emissions from BRIC nations (i.e., Brazil, Russia, India, and China) will grow by 46 percent from 2005 to 2030, and in total will roughly equal the emissions from the thirty OECD countries combined by 2030 [11]
Summary
During the last three decades, China has witnessed impressive economic growth, along with rapid industrialization and urbanization. The reasoning is in line with the “pollution heaven hypothesis” which postulates that polluting industries are welcome by low-income countries with low environmental standards, even though they cannot survive in developed countries where environment regulations are strict [15] In this view, globalization undermines the Chinese governments’ ability to protect the environment through the regulation of corporate behavior [16]. Some studies have questioned the accuracy of official pollution statistics, as any policy that motivates local governments to reduce pollution may motivate them to report better outcomes on paper [17]. This is especially true under China’s regionally decentralized authoritarian (RDA) regime, where an independent judiciary, transparent information, and official accountability are all absent [18].
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