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China's Rising Demand for "Green Cities": Evidence from Cross-City Real Estate Price Hedonics

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  • Siqi Zheng
  • Jing Cao
  • Matthew E. Kahn

Abstract

With the decline of the traditional hukou system, migrants in China have a broad set of cities to choose from. Within an open system of cities, compensating differentials theory predicts that local real estate prices will reflect the marginal valuation of non-market local public goods. More polluted cities will feature lower real estate prices. But, local pollution may be caused by booming local industries. To address such endogeneity concerns, we estimate hedonic regressions using an instrumental variable strategy based on “imports” of pollution from nearby sources. By documenting the importance of spatial emissions patterns, our study highlights how real estate prices in one city are affected by Pigouvian externalities originating in another location. On average, a 10% decrease in imported neighbor pollution is associated with a 1.8% increase in local home prices.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 16992.

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Date of creation: Apr 2011
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Publication status: published as Real Estate Valuation and Cross-Boundary Air Pollution Externalities: Evidence from Chinese Cities (joint with Cao, Zheng and Sun), Journal of Real Estate Finance and Economics, April 2013
Handle: RePEc:nbr:nberwo:16992

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  1. Gyourko, Joseph & Tracy, Joseph, 1991. "The Structure of Local Public Finance and the Quality of Life," Journal of Political Economy, University of Chicago Press, vol. 99(4), pages 774-806, August.
  2. Zheng, Siqi & Kahn, Matthew E. & Liu, Hongyu, 2010. "Towards a system of open cities in China: Home prices, FDI flows and air quality in 35 major cities," Regional Science and Urban Economics, Elsevier, vol. 40(1), pages 1-10, January.
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Citations

Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. China's Future Green Cities
    by Matthew E. Kahn in Environmental and Urban Economics on 2011-12-02 16:10:00
  2. “Green People Power” in China
    by Matthew E. Kahn in The Reality-Based Community on 2012-10-28 22:09:57
  3. My Harvard Business Review Blog Piece on China's Bullet Trains and a History of My Economic Thought About China
    by Matthew Kahn in Environmental and Urban Economics on 2013-04-08 15:50:00
  4. Exploring Green Cities in China
    by Matthew Kahn in Urbanization Project on 2013-04-09 23:17:09
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Cited by:
  1. Jing Wu & Yongheng Deng & Jun Huang & Randall Morck & Bernard Yeung, 2013. "Incentives and Outcomes: China’s Environmental Policy," NBER Working Papers 18754, National Bureau of Economic Research, Inc.
  2. Zheng, Siqi & Wu, Jing & Kahn, Matthew E. & Deng, Yongheng, 2012. "The nascent market for “green” real estate in Beijing," European Economic Review, Elsevier, vol. 56(5), pages 974-984.
  3. Wenjie Wu, 2012. "Does Public Investment Spur the Land Market?: Evidence from Transport Improvement in Beijing," SERC Discussion Papers 0116, Spatial Economics Research Centre, LSE.

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