Tuesday, 15 December 2009

"Open cities", pollution and FDI in China

Matthew Kahn and co-authors have published an interesting paper in Regional Science and Urban Economics. Matt Khan is a fellow blogger and does very good work on the urban-environment nexus (he is also the author of the excellent "Green Cities".

To cover FDI, pollution and house prices in one 10 page paper is impressive.

I am skeptical that migration patterns will be influenced by pollution at this stage of China's development. The paper does point out the impediment caused by the "Hukou" system. I think they underestimate the importance of hukou as a distortion on migration and the speed by which cities can develop.

The "housing bubble" during this period also distorts the market especially in Beijing.

Finally, this paper is related to the standard Kuznet's curve literature (as acknowledged in the paper). This literature suggests that China has yet to reach the turning point for many pollutants. The conclusions of this paper are optimistic although I am not sure I share this optimism. It is unlikely that any Chinese city in the next 10 years will move from a "producer" to a "consumer" city. The authors are right to state in the last line of the paper that any improvement will be part of a "long term trend".

Towards a system of open cities in China: Home prices, FDI flows and air quality in 35 major cities

Siqi Zheng, Matthew E. Kahn and Hongyu Liu


Over the last 30 years, China's major cities have experienced significant income and population growth. Much of this growth has been fueled by urban production spurred by world demand. Using a unique cross-city panel data set, we test several hypotheses concerning the relationship between home prices, wages, foreign direct investment and ambient air pollution across major Chinese cities. Home prices are lower in cities with higher ambient pollution levels, and the marginal valuation for green amenities is rising over time. Cities featuring higher per-capita FDI flows have lower pollution levels. These findings may indicate that major Chinese cities are making the transition from “producer cities” to “consumer cities”, which raises the prospects of sustainable economic development in China.

Keywords: China; Urban growth; FDI; Air pollution; Quality of life



shahid said...

Great subject. I have been playing around with the idea of the comment structure recently.

The popular comment layout is common, so it is easily recognized when scanning to post a comment. If the comment section is in a different format, then I am going to spend more time trying to decipher what everything means.

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