The Economic Costs of Sustainability- Evidence from China's Land Market

Abstract

Sustainability comes at a huge cost, and we investigate the economic costs of promoting sustainability for local governments in China. Using comprehensive firm land parcel purchase data, our analysis uncovers the preferential treatment for more sustainable firms by local government as land supplier. Detailed estimates reveal that these governments are willing to invest up to 440 thousand yuan per hectare for clean land and may even forego 0.13%-0.15% of GDP growth for sustainability initiatives. Such significant payments are driven by adherence to central directives rather than local demand. Sustainable firms reciprocate by increasing their charitable contributions and compliance with regulations, also leveraging their sustainability status to negotiate advantageous land purchase agreements. This research exposes the complex interplay between politics and economics that shapes the ESG terrain within centralized governance systems.

Keywords: sustainable development, ESG, land market, political incentives, economic growth

JEL Classification: G38, Q01, R52