Spatial Regression Discontinuity Design Research Articles

Distance makes a difference: The role of water pollution regulation on firms’ innovation in China

Throughout the imminent water crisis era and stringent water environment management, enterprises play a vital role in environmental governance. However, there is seldom analysis on how the water environment regulation influences an enterprise's innovation due to data deficiency. Using our database from 2000 to 2022, we combine geographic information from water quality monitoring stations with the data on listed companies in China to pinpoint what distance firms are exposed to the monitoring stations. Results from a spatial regression discontinuity design along the geographic distances demonstrate that water environmental regulation has a significant positive impact on the quantity and quality of enterprise innovation. This paper found that it is primarily driven by the decreased usage of intermediate goods, rising industry profits from the exit of low-productivity firms, and enhanced enterprise research and development (R&D) investment. Furthermore, the positive impact is more pronounced for privately-owned firms, firms closer to suppliers, polluting firms, and politically unaffiliated firms. Our study offers scientifically valuable insights for emerging market countries in formulating effective water environmental regulation policies to incentivize firms to innovate in environmental protection. Additionally, it provides novel ideas on synergizing water environmental regulation and firm innovation to foster a mutually beneficial relationship between environmental protection and sustainable development.

Revisiting the historical state: Long-term effects of institutional history on deforestation

Existing work has shown long-run effects of historical institutions on economic development. However, few studies examine long-run effects of institutions on the environment. In this paper, we build on work by Dell et al. (2018) to demonstrate the effect of historical institutions in southern Vietnam on forest cover. Using a spatial regression discontinuity design, we find a larger coverage of forest and a lower rate of deforestation in a region that historically delegated administrative tasks from the central state to the village, fostering local cooperation. Thus, our findings are in line with previous work suggesting a connection between local cooperation and the preservation of common pool resources. Further, the results suggest that historical institutional differences should be considered for a better understanding of determinants and possible remedies of forest loss.

Indirect rule and public goods provision: evidence from colonial India

AbstractThis paper contributes to the conflicting literature about indirect rule by delivering a new theoretical explanation for the persistent effects of indirect rule on contemporary provision of public goods. It looks at a single region of India which has areas that historically experienced both direct and indirect rule. The theoretical mechanism focuses on the principal-agent problem and the incentives that it produces for local leaders. Unlike local princes, colonizers were under stricter oversight and had to be more accountable to the top due to the obligations to extract resources. A spatial regression discontinuity design is used to compare directly and indirectly ruled territories. The empirical results show that indirect rule has predominantly long-term negative effects on the provision of selected public goods.

Violent Conflict and Informal Institutions: Evidence from a Civil Conflict in Pakistan

Conflicts have a variety of economic, social, and institutional consequences. In this study, we analyse the institutional legacies of violent conflicts by providing evidence from a civil conflict which occurred in the district Swat of Khyber-Pakhtunkhwa (KP), Pakistan. We consider three dimensions, i.e. Trust, Participation, and Cooperation, of informal institutions. District Buner—the neighboring district, is taken as the control district. A random sample of 500 households from each district is selected and Ordinary Least Squares (OLS) and Spatial Regression Discontinuity Design (SRDD) are employed for estimation. We find that exposure to violence undermines out-group trust and trust in governmental organisations; however, it promotes within-group trust and trust in Non-Governmental Organisations (NGOs). Likewise, conflicts stimulate participation in social organisations, political activities, and nongovernment structures but discourage participation in formal government structures. With regard to cooperation, conflicts have beneficial effects on within-group cooperation, collective problem solution, and cooperation with NGOs. However, they retard cooperation with formal government structures. The intensity of these effects is influenced by the location of the individuals as is shown by the results of SRDD. Alternatively, highly exposed areas exhibit comparatively higher changes in trust, participation, and cooperation as compared to the moderately and least affected areas.

Water quality monitoring and mortality: evidence from China

ABSTRACT Understanding the implementation of environmental regulation is essential to the design of environmental policy. The impact of water pollution regulation on mortality was examined in this study using a spatial regression discontinuity (RD) design based on China’s water quality monitoring system. Because water quality readings are important to the political promotion of officials and water quality monitoring stations only capture water pollution from upstream, local governments have an incentive to combat water pollution upstream, not downstream. Exploring this discontinuity in the stringency of regulations by linking the 2010 census microdata with water quality monitoring station location data in China, we found that households immediately upstream of a monitoring station faced a more than 11% reduction in household mortality compared to households immediately downstream of a monitoring station. Strict water quality supervision had a greater effect on mortality in rural households. The difference in mortality between upstream and downstream households was even greater for monitoring stations with high implementation and automatic monitoring technology. The results of this study improve our understanding of the health effects of environmental regulation, as well as the design and implementation of environmental regulation policies under a centralized political system.

Incentives, penalties, and rural air pollution: Evidence from satellite data

I test the role of economic incentives and command and control in reducing agricultural fires, a major source of air pollution in most rural regions across the world caused by burning crop residues after harvest. To tackle data shortage, I use high-resolution satellite data to construct a fine measure of agricultural fires as well as other geographic characteristics at 1 km × 1 km resolution for China. Using the staggered arrival of biomass power plants, which purchase crop residues as production inputs from nearby areas, as a shock to economic incentives, I find a more than 30% drop in agricultural fires in the vicinity of a plant after its opening relative to areas farther away. Such drop cannot be explained by structural transformation, migration, or enhanced regulation near the plant, and is consistent with an incentive-based explanation. I then examine the effectiveness of a command and control policy that bans agricultural fires within 15 km of airports. Using a spatial regression discontinuity design, I find no evidence that such policy works.

National leverage points to reduce global pesticide pollution

There is an urgent need to reduce the environmental risk of pesticide pollution worldwide. We here explore national leverage points, using a novel dataset of 21.4 million georeferenced grid cells and a spatial regression discontinuity design. Our analysis lets us separate how much cross-country differences in the risk of pesticide pollution are caused by differences in countries’ agricultural systems and policies and how much is explained by other factors, such as environmental differences between the countries for example (e.g. pest pressures). We estimate that a third of the global cross-country differences in the pesticide pollution risk are caused by differences in countries’ agricultural systems and policies. The main explanations, and thus leverage points for policies, are differences in countries’ pesticide regulations, their share of organic farming, and type of crops that are grown. We find a trade-off between pesticide pollution risk and soil erosion only in the Americas and in Asia, but not elsewhere, and we do not find a trade-off between pesticide pollution risk and crop yield gaps.

Direct payments and on-farm employment: Evidence from a spatial regression discontinuity design

Abstract Direct payments are regarded as a suitable instrument to safeguard jobs in the agricultural sector. However, empirical findings to date do not unambiguously support this expectation. We further empirically investigate this research question on dairy farms with a focus on family work. Using a spatial regression discontinuity design, we rely upon selection on unobservables assumptions. The Swiss direct payments system creates a discontinuous jump near the border of agricultural production zones for the amount of public subsidies a farm receives. Using two-stage least squares (TSLS) to estimate the policy-relevant effect, we find that an additional CHF 50,000 can generate a job for a female family worker in the dairy sector. Male employment is not affected. These results show that direct payments can safeguard traditional family farming.

Fascistville: Mussolini’s new towns and the persistence of neo-fascism

This paper explores the link between infrastructures built by autocratic regimes and political values in the wake of the transition to democracy and in the long run. In Fascist Italy (1922–43), Mussolini founded 147 “New Towns” (Città di Fondazione). Exploring municipality-level data before and after their construction, I document (1) that the New Towns enhanced local electoral support for the Fascist Party and (2) that the effect persisted through democratization, enhancing local support for Italy’s neo-fascist party, which endured until recent times. Placebo estimates of New Towns planned but not built and spatial regression discontinuity design both support a causal interpretation of this pattern. Survey respondents near the New Towns currently exhibit preferences for a stronger leader in politics, for nationalism, and for the fascists as such. The effect is greater for individuals who lived under the Fascist Regime and is transmitted across generations inside the family. The findings suggest that authoritarian leaders may exploit public investment programs to induce a favorable view of their ideology, which persists across institutional transitions and over the long term.

Factor Market Failures and the Adoption of Irrigation in Rwanda

Factor market failures can limit adoption of profitable technologies. We leverage a plot-level spatial regression discontinuity design in the context of irrigation use by farmers provided free access to water. Using irrigation boosts profits by 43–62 percent. Yet, farmers only irrigate 30 percent of plots because of labor costs. We demonstrate inefficient irrigation use, by showing farmers irrigating one plot reduce their irrigation use on other plots. This inefficiency is largest for smaller households and wealthier households, suggesting labor market frictions constrain use of irrigation. (JEL D24, O13, Q12, Q15, Q16)

Removing federal subsidies from high‐hazard coastal areas slows development

The US federal government has implemented a variety of policies and subsidies that help coastal development remain viable, including investments in risk reduction measures, subsidized flood insurance, and post‐disaster assistance. In this study, we explored how the removal of federal subsidies impacts coastal development patterns by measuring the causal effect of the US Coastal Barrier Resources Act (CBRA) on building activity. Implemented in 1982, CBRA withdrew eligibility for federal funding for infrastructure, post‐disaster assistance, and subsidized flood insurance along designated sections of coastal barriers (“CBRA units”). Using a novel built‐structures dataset, we employed a spatial regression discontinuity design to compare development rates within and outside of CBRA units in 1980 and 2016. We found that enactment of the CBRA has resulted in significant reductions in development activity: indeed, development rates were reduced by more than 75% in CBRA areas as compared to non‐CBRA areas. Our findings suggest that policies like CBRA can be effective at slowing development in other sensitive or hazardous areas, and could help to preserve natural environments for habitat conservation and climate adaptation purposes.

Language and the cultural markers of COVID-19

Despite its universal nature, the impact of COVID-19 has not been geographically homogeneous. While certain countries and regions have been severely affected, registering record infection rates and excess deaths, others experienced only milder outbreaks. We investigate to what extent human factors, in particular cultural origins reflected in different attitudes and behavioural norms, can explain different degrees of exposure to the virus. Motivated by the linguistic relativity hypothesis, we take language as a proxy for cultural origins and exploit the exogenous variation in the language spoken around the border that divides the French- and German-speaking parts of Switzerland to estimate the impact of culture on exposure to COVID-19. The results obtained using a spatial regression discontinuity design reveal, that within 50- and 25- kilometres bandwidth from the language border, the average COVID-19 exposure levels for individuals in French speaking municipalities was higher. In particular, we find that German speaking municipalities were associated with a reduction of around 40% - 50% in the odds of COVID-19 exposure compared to the French speaking municipalities.

Populist voting and losers’ discontent: Does redistribution matter?

Economic roots of populism in Western countries point to the role of economic insecurity that plagues losers from recent large economic shocks. We show that fiscal redistribution matters by comparing Italian municipalities equally hit by the economic shocks leading to populism but, at the same time, very differently exposed to the generosity of the EU structural funds, because of their locations on the two opposite sides of the geographical border that determines eligibility. Estimates resulting from a spatial regression discontinuity design show that in 2013 general election larger EU financing caused a drop in populism of about 9% of the mean of the dependent variable.

The impacts of political hierarchy on corporate pollution emissions: Evidence from a spatial discontinuity in China

Exploiting Chongqing's promotion to a province-level municipality, this paper investigates the causal effect of political hierarchy on corporate SO2 emissions using a spatial regression discontinuity (RD) design. In 1997, the prefecture-level Chongqing was promoted to a province-level municipality, obtaining a substantial increase in decision-making power over fiscal, personnel and administrative affairs. Given the fact that the areas around the Chongqing-Sichuan border shared the same social, economic, and geographical conditions prior to the treatment, the novel findings show that political hierarchy negatively affects corporate SO2 emissions and Chongqing's enterprises adjacent to the border have a 26% (1-e−0.301) reduction of SO2 emissions comparatively. The effects are robust enough using alternative model specifications and bandwidths. Besides, this paper provides empirical evidence that enterprises of Chongqing have resource-receiving and external-financing advantages owing to its higher political status. These interwoven advantages help enterprises in Chongqing exhibit better financial performance and enable them to conduct energy substitution, improve energy efficiency and adopt more end-of-pipe treatment, thereby mitigating SO2 emissions. Based on these findings, this study provides policy implications by shedding light on the effects of political hierarchy on corporate pollution emissions.

Do Environmental Markets Improve on Open Access? Evidence from California Groundwater Rights

Environmental markets are widely prescribed as an alternative to open-access regimes for natural resources. We develop a model of dynamic groundwater extraction to demonstrate how a spatial regression discontinuity design that exploits a spatially-incomplete market for groundwater rights recovers a lower bound on the market’s net benefit. We apply this estimator to a major aquifer in water-scarce southern California and find that a groundwater market generated substantial net benefits, as capitalized in land values. Heterogeneity analyses point to gains arising in part from rights trading, enabling more efficient water use across sectors. Additional findings suggest the market increased groundwater levels.

Examining persistent effects of extractive institutions in the United States

AbstractThis paper estimates the medium‐ to long‐run effects of slavery in the United States in a spatial regression discontinuity design. Using the boundary between free and slave states immediately antebellum, we find that legal slavery decreased per capita manufacturing output by as much as 30% in the decades following the Civil War. Perhaps surprisingly, agricultural output and farm values were only briefly depressed in former slave states after the war. Although emancipation ended slavery, political forces kept the institution from being completely disintegrated, and we explore channels through which this was possible. We show that slavery affected the structure of the economy in a given region—specifically through agricultural production decisions—and that these structures persisted long after passage of the 13th Amendment. However, sharecropping played a relatively small role in this region. Our results support mounting evidence in recent literature of the significant and lasting effects of institutions on economic development.

Cell Phone Access and Election Fraud: Evidence from a Spatial Regression Discontinuity Design in Afghanistan

This paper examines the impact of cell phone access on election fraud. I combine cell phone coverage maps with the location of polling centers during the 2009 Afghan presidential election to pinpoint which centers were exposed to coverage. Results from a spatial regression discontinuity design along the two-dimensional coverage boundary suggest that coverage deters corrupt behavior. Polling centers just inside coverage report a drop in the share of fraudulent votes of 4 percentage points, while the likelihood of a fraudulent station decreases by 8 percentage points. Analyses of the effect of coverage on citizen participation in election monitoring, election-related insurgent violence, and the tribal composition of villages suggest that the observed declines in fraud are likely attributed to cell phone access strengthening social monitoring capacity. (JEL D72, K16, K42, O17, Z13)

The Electoral Impact of Wealth Redistribution: Evidence from the Italian Land Reform

Governments often implement large-scale redistribution policies to gain enduring political support. However, little is known on whether such policies generate sizable gains, whether these gains are persistent, and why. We study the political consequences of a major land reform in Italy. A panel spatial regression discontinuity design shows that the reform generated large electoral gains for the incumbent Christian Democratic party, and similarly large losses for the Communist party. The electoral effects persist over four decades. Farmers’ grassroots organizations and continued political investment in reform areas (i.e. fiscal transfers and public sector employment) are plausible mechanisms for this persistence. We find less support for other potential explanations, including migration, voters' beliefs, and patterns of economic development.

The Political Legacy of Nazi Annexation

This paper uses a historical natural experiment - the case of Nazi Operational Zones (OZ) in Italy during WWII - to shed light on the legacy of foreign state repression. While the rest of Northern Italy was placed under Fascist rule, the OZ were de facto annexed by Nazi Germany and subjected to full German administrative and military control. A large segment of the OZ boundary partitioned historically homogeneous regions in a quasi-exogenous manner. Using a spatial regression discontinuity design, we first show that the OZ experienced harsher political persecution and violence. After the war, OZ areas exhibited greater support for radical opposition, on both the left and the right, as well as lower political participation. We interpret these findings as evidence of disenchantment in the political process and distrust of the state. Consistent with this argument, voters in affected areas showed lower political trust and less support for laws suppressing dissent. Overall, our results suggest that foreign repression, even if temporary, has enduring political and social consequences.

Judicial Efficiency and Bank Credit to Firms

This paper analyses empirically the effect of judicial efficiency on bank credit contractual terms for the universe of Italian corporations borrowing from the banking sector. Exploiting within-country variation in the length of bankruptcy proceedings across different jurisdictions, the paper uses a spatial regression discontinuity design that compares credit conditions applied to firms located in municipalities on different sides of jurisdiction borders, controlling for bank characteristics. The results show that judicial efficiency is associated with a reduction in the cost of credit as well as with an increase in its availability for firms, in particular for those at high risk of default. Judicial efficiency increases leverage and investment for high risk firms. All these results suggest that the banking system tilts credit conditions in favor of safe firms as court inefficiency increases. Finally, court efficiency is also associated with a reduction in both the stock and the flow of Non Performing Loans.