Incentives and Outcomes: China's Environmental Policy

56 Pages Posted: 24 Jan 2013 Last revised: 24 Jul 2013

See all articles by Jing Wu

Jing Wu

Tsinghua University - Hang Lung Center for Real Estate; Tsinghua University - Department of Construction Management

Yongheng Deng

Wisconsin School of Business, University of Wisconsin-Madison

Jun Huang

Shanghai University of Finance and Economics

Randall Morck

University of Alberta - Department of Finance and Statistical Analysis; National Bureau of Economic Research (NBER); European Corporate Governence Institute; Asian Bureau of Finance and Economic Research

Bernard Yin Yeung

National University of Singapore - Business School

Multiple version iconThere are 3 versions of this paper

Date Written: July 2013

Abstract

China’s record-breaking economic growth is evoking increasing concern about unaddressed environmental problems. We show that, while city government spending on environmental infrastructure has a demonstrably positive environmental impact, city spending is nonetheless strongly tilted towards transportation infrastructure. City governments’ investment in transportation infrastructure is strongly positively correlated with real GDP growth, a measure of tangible economic growth that is found to raise city-level cadres’ odds of being promoted, and with land prices, which elevate city governments’ revenues from land lease sales and thus augment city-level cadres’ budgets. In contrast, city governments’ spending on environmental improvements is at best uncorrelated with cadres’ promotion odds, and is also uncorrelated with local GDP growth and land prices. These findings suggest that, were environmental quality explicitly linked to cadres’ chances of promotion, or were environmental quality to affect land prices substantially, city-level public investment in environmental improvement would rise.

Keywords: Urban Infrastructure, Environmental Protection, Local Government, China

JEL Classification: H54, P26, Q58, R11

Suggested Citation

Wu, Jing and Deng, Yongheng and Huang, Jun and Morck, Randall K. and Yeung, Bernard Yin, Incentives and Outcomes: China's Environmental Policy (July 2013). ECGI - Finance Working Paper No. 368. Available at SSRN: https://ssrn.com/abstract=2206043 or http://dx.doi.org/10.2139/ssrn.2206043

Jing Wu

Tsinghua University - Hang Lung Center for Real Estate ( email )

HeShanHeng Building
Beijing, 100084
China

HOME PAGE: http://thuwujing.net

Tsinghua University - Department of Construction Management ( email )

Heshanheng Building
Tsinghua University
Beijing, 100084
China

HOME PAGE: http://thuwujing.net

Yongheng Deng

Wisconsin School of Business, University of Wisconsin-Madison ( email )

4110 Grainger Hall
975 University Avenue
Madison, WI 53706
United States
+1 (608) 262-4865 (Phone)

HOME PAGE: http://https://bus.wisc.edu/faculty/yongheng-deng

Jun Huang

Shanghai University of Finance and Economics ( email )

777 Guoding Road
Shanghai, AK Shanghai 200433
China

Randall K. Morck (Contact Author)

University of Alberta - Department of Finance and Statistical Analysis ( email )

2-32C Business Building
Edmonton, Alberta T6G 2R6
Canada
780-492-5683 (Phone)
780-492-3325 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

European Corporate Governence Institute ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Asian Bureau of Finance and Economic Research ( email )

BIZ 2 Storey 4, 04-05
1 Business Link
Singapore, 117592
Singapore

Bernard Yin Yeung

National University of Singapore - Business School ( email )

15 Kent Ridge Drive
BIZ 1 Level 6
Singapore, 119245
Singapore
65 6516 3075 (Phone)
65 6779 1365 (Fax)

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