The Impact of the Dynamics of Agglomeration Externalities on Air Pollution: Evidence from Urban Panel Data in China

Abstract

Air pollution in China has become a matter of increasing public concern. In this paper, we attempted to build a theoretical model to explore the impact of the dynamics of agglomeration externalities on haze pollution in urban China, where agglomeration is differentiated by regional specialization and geographical concentration. Based on China’s panel data for 289 cities during the period of 1998–2018, the empirical result shows that the relationship between industrial agglomeration and urban haze pollution is not simply linear or of an inversed U-type but turns out to be dynamically N-shaped. To be specific, the increase in local haze pollution can be explained by agglomeration externalities in the beginning stage, whereas the reducing effect only occurs during the mature stage. The heterogeneity test indicated that the effect of the type of agglomeration on haze pollution seems to be mixed in different groups of cities, but is still consistent with the hypothesis of the dynamic change of agglomeration externalities. The results are found to be quite robust and consistent after replacing variables and using other regression methods. This paper provides answers to the question of how to coordinate the relationship between developing industry parks and air pollution in terms of the life cycle of agglomeration as well as the types of city.