The Impact of Water and Soil Scarcity and Pollution on Industrial Agglomeration: Evidence from China

Abstract

Water and soil scarcity and pollution have become more severe problems in China in recent years. On one hand, rapid economic growth has led to increasing environmental problems. On the other hand, the environmental problems resulting from human economic activities can impose new constraints on industrial agglomeration, making economic development unsustainable. In the present study, an individual fixed-effect model was constructed based on the framework of the new economic geography and the provincial-level data of China. The model estimated its parameters with OLS in order to analyze how the mechanisms of industrial agglomeration are affected by resource security and environmental factors. In addition, this study also used Hausman statistical tests and Fisher–PP unit root tests to analyze the endogenous problems and robustness of the model, respectively. The results showed that water and soil scarcity and environmental pollution have negative effects on industrial agglomeration. The negative effects were observed to significantly increase with levels of local government competition, but did not vary with the regional market segmentation.