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Income, Policy, and Pollution

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Abstract

This paper identifies the roles of an environmental protection policy and income growth in enhancing environmental quality in China. In 2005, the Central Government of China piloted a policy that linked regional environmental quality to the performance assessment of local government officials in some provinces. After the implementation of the policy, pollution levels reduced substantially. However, many researchers believe that the improvement of China’s environmental quality might have been due to an increase in per capita income, i.e., there is the presence of an “environmental Kuznets curve.” We use a nonparametric IV model and a synthetic control method to identify the role of income and policy in improving environmental quality. Results show that after controlling for the mutual effects of the two factors, income level had an inverted U-shaped relationship with sulfur dioxide and wastewater emissions. There are differences in the effects of policies on pollution reduction among different cities, and the magnitude is affected by regional economic development. Our findings contribute to the understanding of the effects of income and policy on pollution reduction.

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Fig. 1

Source: China environmental bulletin in various year

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Notes

  1. The Environmental Performance Index (EPI) ranks 180 countries on 24 performance indicators across ten issue categories covering environmental health and ecosystem vitality. The EPI is produced jointly by Yale University and Columbia University in collaboration with the World Economic Forum. Source: https://epi.envirocenter.yale.edu/.

  2. China began formulating its "five-year plans" starting in 1953. These five year plans are the most important part of China's national economic plan and also they provide a long-term policy perspective. The main goal is to make plans for major national construction projects, distribution of productive forces, and important proportions of the national economy and set targets and directions for the prospects of national economic development. The "10th Five-Year Plan" and "Eleventh Five-Year Plan" were implemented in 2001–2005 and 2006–2010 respectively.

  3. This environmental policy is a pilot policy put forward by the central government of China to improve the overall environmental quality in the country. This type of centrally planned environmental policy can be regarded as exogenous. However, we do not mean to imply that all environmental policies are exogenous. Promulgation of a large number of environmental policies is affected by environmental quality, and there is endogeneity concern when policy is included in the EKC framework.

  4. Secondary industry: industry that converts the raw materials provided by primary industry into commodities and products for the consumer, e.g., the manufacturing industry.

  5. Our assumption regarding the unknown functional form and endogeneity of income variable in an EKC model is consistent with Horowitz (2011) and Lawell et al. (2018).

  6. The non-parametric IV estimates in this paper, which contain continuous and discrete variables, are estimated by using the R package “crs.”.

  7. For the no treatment cities, adding “policy dummy variables” is similar to the placebo test. The policy time is the same as that of the treatment cities in 2005.

  8. We will not elaborate on the specific estimation method. For details, see Abadie et al. (2010). We use the R package “Synth” developed by Abadie et al. (2011) to estimate the model.

  9. Chengdu and Hangzhou are capital cities of the Sichuan and Zhejiang provinces. Shaoxing and Zhoushan are in the Zhejiang province and Panzhihua and Guangyuan are in the Sichuan province. Figure 2 shows these cities.

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Acknowledgment

Senior authorship is equally shared by the three authors. Paudel's time on this paper was supported by USDA Hatch projects #94382 and #94483. Tan's time on this paper was supported by the National Natural Science Foundation of China (Project #71973046).

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Authors and Affiliations

  1. College of Economics and Management, South China Agricultural University, Guangzhou, China

    Hongtao Hu & Ying Tan

  2. Department of Agricultural Economics and Agribusiness, Louisiana State University (LSU) and LSU Agricultural Center, Baton Rouge, Louisiana, USA

    Krishna P. Paudel

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  1. Hongtao Hu
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Correspondence to Krishna P. Paudel.

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Hu, H., Paudel, K.P. & Tan, Y. Income, Policy, and Pollution. Environ Resource Econ 81, 131–153 (2022). https://doi.org/10.1007/s10640-021-00621-6

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