The Higher Land Prices, the Worse Emission Performance? Theory and Evidence

Abstract

This study investigates whether high land prices in China have worsened polluting enterprises’ emission performance. Our model confirms that increases in pollution intensity led by rising land prices are the result of fewer resources being directed to abatement investments, which corresponds to smaller declines in emissions versus output. We use a compiled micropanel dataset to conduct the empirical analyses. It covers Chinese major industrial enterprises’ information about their pollutant emissions and treatment as well as land transfer. Our empirical mechanism exploration corroborates the theoretical findings described earlier. Also, consistent with the results of theoretical comparative statics, the promoting effects of land prices on pollution intensity are found to be more significant among less productive and dirtier enterprises, as well as those facing weaker local environmental regulations. Further heterogeneity tests highlight the roles of land transfer methods and political affiliation. This study complements the literature on the adverse environmental impacts of land finance from the view of rising land prices.