Do local government-industry linkages affect air quality? : evidence from cities in China

Abstract

I investigate the relationship between local government-industry linkages and pollution outcomes in Chinese cities over the period 2003 to 2010. For identification, I rely on the administrative rotation of city mayors, which is determined by political career considerations and retirement age cut-offs but unrelated to their environmental records. These transitions act as plausibly exogenous shocks that disrupt the relationship between the local government and enterprises at the city level. I employ several statistical models to investigate the leadership's impacts on environmental outcomes. First, a simple t-test is used to evaluate the change in the pollution index when mayors with particular characteristics enter or leave office. In addition, empirical models are utilized to explore the correlation between mayoral characteristics and changes in city-level pollution. I find correlations between mayoral characteristics and city-level environmental outcomes, focusing specifically on SO₂ emissions, SO₂ emission intensities, and end-of-pipe SO₂ removal ratios. Finally, firm-level data allow me to identify the relationship between mayoral characteristics and pollution by enterprises of specific ownership types. Mayors with different characteristics show distinct impacts on city-level pollution. I hypothesize that city leaders who have previous experience in industry pay more attention to local economic growth rather than environmental improvements, resulting in increased SO₂ emissions. Consistent with this hypothesis, I find that mayors with industry work background correspond to an increase (decrease) in city-level SO₂ emissions when they enter (leave) office after controlling for city and year fixed effects. Apart from this, I expect that leaders closer to retirement are under less pressure for promotion as they are going to retire soon and due to age cut-offs may not be eligible for higher positions; instead, they may feel less pressure to promote local businesses and pay more attention to environmental management. Evidence shows consistently that tenures of mayors on the verge of retirement are associated with reductions in city-level SO₂ emissions and increases in city-level end-of-pipe SO₂ removal rates. Further investigation shows that mayors realize their environmental goals via enterprises of specific ownership types. I predict that mayors rotated from the central government are not under pressure of promotion and they are adherent to the central policy in reducing SO₂ emission intensities. I further predict that mayors from the local administration are expected to enforce the usage of SO₂ removal facilities, particularly among enterprises of low level authorities. Consistent with these hypotheses, results show that mayors with work background in central and local governments are associated with improved environmental outcomes, but through different channels. A central government work background results in intensity reduction, but not necessarily SO₂ emissions; however, local government work background is associated with short-term reductions in SO₂ intensities, possibly due to increases in SO₂ removal ratios, particularly among city SOEs. In addition to the analysis of mayoral characteristics, my research reveals several additional interesting findings. I find that enterprises of lower rank more readily build linkages with local officials not only for economic development but also for environmental management as high-ranking enterprises may face a more stringent monitoring system and are more politically powerful. Implications for environmental policy design in China can be drawn from the results. First, industries are encouraged to behave independently from the government in economic activities as well as policy implementation. Second, environmental performance should be effectively and explicitly included in the evaluation program of officials. Third, government-industry linkages, to the extent that they undermine the economic and policy system, should be minimized as much as possible.