Incentives and Outcomes: China's Environmental Policy

Jing Wu, Yongheng Deng, Jun Huang, Randall Morck, Bernard Yeung

NBER Working Paper No. 18754
Issued in February 2013
NBER Program(s):Corporate Finance, Environment and Energy Economics

In generating fast economic growth, China is also generating growing concern about its environmental record. Using 2000-2009 data, we find that, while spending on environmental infrastructure has visible positive environmental impact, city spending is strongly tilted towards transportation infrastructure. Investment in transportation infrastructure correlates strongly with both real GDP growth, a measure of tangible economic growth relevant to city-level Party and government cadres' promotion odds, and with land prices, which affect city governments' revenues from land lease sales. In contrast, city governments' spending on environmental improvements is at best uncorrelated with cadres' promotion odds, and is uncorrelated with local GDP growth and land prices. These findings suggest that, were environmental quality explicitly linked to a cadre's chance of promotion, or were environmental quality to affect land prices substantially, city-level public investment in environmental improvement would rise.

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Document Object Identifier (DOI): 10.3386/w18754

Published: Incentives and Outcomes: China's Environmental Policy Jing Wu, Yongheng Deng, Jun Huang, Randall Morck and Bernard Yin Yeung The Center on Capitalism and Society Journal Volume 9, Issue 1, April 2014

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