Towards a system of open cities in China: Home prices, FDI flows and air quality in 35 major cities

Abstract

Over the last 30 years, China's major cities have experienced significant income and population growth. Much of this growth has been fueled by urban production spurred by world demand. Using a unique cross-city panel data set, we test several hypotheses concerning the relationship between home prices, wages, foreign direct investment and ambient air pollution across major Chinese cities. Home prices are lower in cities with higher ambient pollution levels, and the marginal valuation for green amenities is rising over time. Cities featuring higher per-capita FDI flows have lower pollution levels. These findings may indicate that major Chinese cities are making the transition from “producer cities” to “consumer cities”, which raises the prospects of sustainable economic development in China.