The Environmental Consequences of Place‐Based Policies in China: An Empirical Study Based on SO2 Emission Data

• Published date: 01 July 2022
• Author: Hongwei Xu,Wenquan Liang,Kuanhu Xiang
• Date: 01 July 2022
• DOI: http://doi.org/10.1111/cwe.12433

©2022 Institute of World Economics and Politics, Chinese Academy of Social Sciences

201

China & World Economy / 201–229, Vol. 30, No. 4, 2022

*Hongwei Xu, Assistant Research Fellow, Institute of Economic and Social Development, Dongbei University

of Finance and Economics, China. Email: hongwei@dufe.edu.cn; Wenquan Liang, Associate Professor, School

of Economics, Jinan University, China. Email: liangsuwenquan@163.com; Kuanhu Xiang (corresponding

author), Assistant Professor, School of Economics, Shanghai University, China. Email: khxiang1986@163.com.

This research was fi nancially supported by the National Natural Science Foundation of China (Nos. 71703097,

71803015, and 71803065), and Guangzhou Association of Social Science Societies (No. 18QNXR13).

The Environmental Consequences of Place-Based

Policies in China: An Empirical Study Based on

SO2 Emission Data

Hongwei Xu, Wenquan Liang, Kuanhu Xiang*

Abstract

Previous studies of place-based policies in China have ignored their effect on pollution.

Using event study and difference-in-differences methodologies, we investigated the

consequences of place-based policies on sulfur dioxide (SO

2) emissions. We first

documented the increase in SO2 emissions and SO2 emission intensity in the inland

region after 2003 at the provincial level. The firm-level data for the period between

1998 and 2010 also showed that the performance of enterprises in noneastern regions

in reducing SO2 emissions had worsened relatively since 2003, and this effect was

particularly strong in enterprises located in central and northeast China, where urban

land supply experienced signifi cant growth after 2003. We found that, compared with

environmental regulation changes, inland region-biased economic policies after 2003

were more important in explaining the relative changes in SO2 emissions between

coastal and inland regions. The policy implication is that the central government should

address environmental consequences when designing place-based economic policies.

Keywords: environmental regulation, land supply, place-based policies, pollution

JEL codes: Q56, Q58, R58

I. Introduction

In a large country like China, regional balance is an issue that requires long-term

attention. Since the 1990s, the strength of market-oriented reform and opening-up

policies have led to the rapid development of coastal areas, quickly widening the

economic gap among regions. China’s accession to the World Trade Organization

©2022 Institute of World Economics and Politics, Chinese Academy of Social Sciences

202 Hongwei Xu et al. / 201–229, Vol. 30, No. 4, 2022

(WTO) in 2001 accelerated this pattern. To reduce the regional development gap,

the central government successively put forward regional strategies, such as the

Western Development Strategy, the Strategy of Revitalizing the Old Industrial Base

in the Northeast, and the Rise of Central China in 2000, 2003, and 2004, respectively.

Implementing regionally balanced development strategies has promoted the narrowing

of the regional gap through place-based policies, such as massive infrastructure

investment in less developed regions, tax policies favoring inland regions, transfer

payments, and land policies.

However, there is a cost to the reduction of interregional economic gaps through

the relocation of resources under place-based policies. At the macro level, after 2003,

the growth rate of total factor productivity nationally showed a downward trend, the

efficiency of resource allocation deteriorated, and the debts of some underdeveloped

provinces gradually increased (Lu and Xiang, 2014; Lu and Xiang, 2016; Liu et al.,

2018). The coastal and inland areas experienced large wage increases at the same time

(Zhang et al., 2011), which damaged China’s comparative advantage and international

competitiveness. These wage increases are related mainly to distorted resource

allocation, such as land supply restrictions in the coastal region after 2003 (Lu et al.,

2015; Liang et al., 2016; Liang et al., 2020).

From the perspective of local development, place-based policies may even become

a substitute for market forces and hinder regional convergence. For example, Liu and

Zhao (2015) found that western regional development policies caused a lag in industrial

structural adjustment in the western region. Luo et al. (2019) found that it resulted in

the loss of tax in areas adjacent to the western regions, which are also lagging regions.

The effect of place-based policies on regional gap convergence may not be positive in

the long term. For example, Zhao and Wei (2015) argued that government intervention

policy would inhibit the role of spatial functional division in narrowing regional

disparities. Furthermore, place-based local development policies may cause negative

consequences at the aggregate level. Wu et al. (2018) argued that biases towards more

state-dominated investment and land supply in the less productive western, central and

northeastern regions, at the expense of investment and land supply in more productive

eastern regions, have contributed to the recent slowdown in economic growth in China.

Despite its attention to the negative consequences of the regional development

strategies and place-based policies, previous research has ignored the environmental

consequences. In recent years, pollution and energy consumption have increasingly

become a core issue in China’s economic development. With economic development

and the increase in residents’ income, residents’ demand for better environmental

quality is also gradually increasing (Greenstone and Jack, 2015). In previous