Environmental Justice: Poverty Alleviation and the Entry of Polluting Firms

This paper studies the impact of a large-scale poverty alleviation program in China, which aims at promoting economic development in designated National Poor Counties, on the entry of polluting firms. Using rich data on firm registration and performance, I use both difference-in-differences and triple difference models to estimate the policy impact. The results show that poverty alleviation attracts both polluting firms and non-polluting firms. However, the policy attracts fewer polluting firms than non-polluting firms—compared with the entry of non-polluting firms, the policy decreases the average number of new polluting firms by 16% annually. Moreover, the estimation of dynamic effects suggests that the negative policy impact on the entry of polluting firms increases over time and persists in the long run. Exploring mechanisms driving the impact, I show that first, the poverty alleviation policy increases the exit of polluting firms by 23%, indicating a more difficult industrial environment for polluting firms to survive. Second, it increases regional income that could lead to an increase in people’s marginal willingness to pay for environmental quality improvement. Lastly, National Poor Counties tend to provide smaller government support to polluting firms relative to non-polluting firms.