Is a Regional Coordination Approach to Air Pollution Management Helpful? Evidence from China

Abstract

In February 2017 China began to require the regional coordination of four ministries and 28 cities surrounding Beijing to manage air pollution. The Coordination attempts to unify air pollution standards and implements various new methods to monitor air pollution. Leveraging the natural experiment and using a difference-in-differences research design, we note that firms located in the treatment cities invest more in the environment than those in the control cities. In addition, we find that non-state-owned firms (non-SOEs) respond more strongly than SOEs. The findings remain qualitatively the same after accounting for selection bias in the cities included in the Coordination. Most importantly, air quality improves for treatment cities after the implementation of the Coordination. Our findings offer lessons to other emerging markets for implementing their air pollution management programs. Specifically, we sharpen our knowledge of the administrative management needed to improve coordination among government agencies and local officials in the management of air pollution and suggest that the government can play an active role in enhancing air pollution management.