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Westward movement of new polluting firms in China: Pollution reduction mandates and location choice

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  • Wu, Haoyi
  • Guo, Huanxiu
  • Zhang, Bing
  • Bu, Maoliang

Abstract

This paper provides a systematic study of the location choice of new polluting firms driven by the 11th Five-Year Plan's water pollution reduction mandates in China. We explore a unique dataset of environmental statistics, which contains 31380 polluting manufacturing firms newly established in the period 2006–2010. Our conditional logit model provides strong evidence for the changes of new polluting firms’ location choice from the coastal provinces, which have strict environmental mandates, to the western provinces, which have lax environmental mandates, and demonstrates the distinct location patterns of heterogeneous polluting firms. While foreign polluting firms were generally driven by the mandates, domestic polluting firms were more resistant and were driven to the western provinces only after 2007. As a result, the potential pollution transfer would threaten the more fragile water environments and public health in western provinces. We thus posit a perverse incentive of current environmental policy and recommend integrated water management as well as close coordination of local governments to improve the efficacy of environmental regulation in China.

Suggested Citation

  • Wu, Haoyi & Guo, Huanxiu & Zhang, Bing & Bu, Maoliang, 2017. "Westward movement of new polluting firms in China: Pollution reduction mandates and location choice," Journal of Comparative Economics, Elsevier, vol. 45(1), pages 119-138.
  • Handle: RePEc:eee:jcecon:v:45:y:2017:i:1:p:119-138
    DOI: 10.1016/j.jce.2016.01.001
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    Cited by:

    1. Guojun He & Yang Xie & Bing Zhang, 2017. "Balancing Development and the Environment in a Changing World: Expressways, GDP, and Pollution in China," HKUST IEMS Working Paper Series 2017-43, HKUST Institute for Emerging Market Studies, revised Aug 2017.
    2. Chen, Zhao & Kahn, Matthew E. & Liu, Yu & Wang, Zhi, 2018. "The consequences of spatially differentiated water pollution regulation in China," Journal of Environmental Economics and Management, Elsevier, vol. 88(C), pages 468-485.
    3. repec:kap:regeco:v:53:y:2018:i:3:d:10.1007_s11149-018-9353-2 is not listed on IDEAS
    4. repec:gam:jsusta:v:9:y:2017:i:8:p:1469-:d:108768 is not listed on IDEAS

    More about this item

    Keywords

    Environmental mandates; Location choice; Water pollution; China;

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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