When Power Plants Leave Town: Environmental Quality and the Housing Market in China
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When Power Plants Leave Town: Environmental Quality and the Housing Market in China Guoying Deng1 · Manuel A. Hernandez2 · Shu Xu3 Accepted: 14 October 2020 © The Author(s) 2020
Abstract Air pollution is a major environmental issue in China. This paper exploits the relocation of two major power plants in a large Chinese city as a quasi-natural experiment to examine the effect of changes in the quality of the environment on the housing market. We use an extensive transaction dataset of new apartment units in the affected and neighboring areas. We find that the plants’ closure is associated with a 12–14% increase in prices and 13–31% rise in the volume of transactions in neighborhoods within five kilometers of the plants. We further observe a higher change in prices among more expensive houses. The estimated monthly aggregate effect of the closures on the local housing market is over 50 million US dollars during the first 2 years after the relocations. Keywords Power plants · Environmental quality · Housing market · China JEL Classification Q53 · Q51 · R30 We thank the valuable comments of seminar participants at the American Economic Association Annual Meeting, Latin American Meeting of the Econometric Society, Asian Meeting of the Econometric Society, Triennial Congress of the International Economic Association and European Economic Association Annual Meeting. We also thank Klaus Moeltner and two anonymous referees for their many useful comments. The authors gratefully acknowledge financial support from the Private Enterprise Research Center (PERC) of Texas A&M University, Fundamental Research Funds for the Central Universities of Sichuan University (SKQY201624), Youth Outstanding Talent Training Program of Sichuan University (SKSYL201812 and 2019hhf-08) and National Natural Science Foundation of China (71773081). Electronic supplementary material The online version of this article (https://doi.org/10.1007/s1064 0-020-00517-x) contains supplementary material, which is available to authorized users. * Manuel A. Hernandez [email protected] Guoying Deng [email protected] Shu Xu [email protected] 1
Sichuan University, Chengdu, China
2
IFPRI, 1201 Eye Street NW, Washington, DC 20005, USA
3
Southwestern University of Finance and Economics, Chengdu, China
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1 Introduction Air pollution in China has reached critical levels in recent years, representing a major health and environmental concern across most urban areas in the country. According to the Ambient Air Pollution report released by the World Health Organization (WHO) in 2016, China is among the most polluted countries in the world with annual average concentrations of fine particulate matter (PM) four to five times higher than the levels recommended by the WHO in their Air Quality Guidelines.1 Respiratory and heart diseases related to ambient air pollution are, in turn, the leading cause of death in China. As a consequence, there is an ongoing debate in academic and policy forums on how to reduce
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