Does industry upgrade transfer pollution: Evidence from a natural experiment of Guangdong province in China

Journal of Cleaner Production 229 (2019) 902e910

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Does industry upgrade transfer pollution: Evidence from a natural experiment of Guangdong province in China Dongxia Wei b, 1, Yuan Liu a, 1, N. Zhang c, * a

South China Research Center for Market Economy and Regional Economy Research Center, South China Normal University, School of Economics and Management of South China Normal University, Guangzhou Higher Education Mega Center, Guangzhou, Guangdong, 510006, China b College of International Programs, Guangdong University of Finance, No.527, Yingfu Road, Tianhe District, Guangzhou, Guangdong, 510521, China c School of Management, Qilu University of Technology (Shandong Academy of Science), Jinan 250353, China

a r t i c l e i n f o

a b s t r a c t

Article history: Received 12 November 2018 Received in revised form 17 March 2019 Accepted 22 April 2019 Available online 23 April 2019

China pushes industry upgrade by relocating the backward industry from the eastern regions to the middle and western areas, but rare studies examine its environment impact. By using the prefecturelevel panel data and the Difference in Differences method, we evaluate the environment outcome of the industry upgrade in Guangdong province since 2008. We find that the industry upgrade in Pearl River Delta brings pollution in the less developed regions, representing by more volume and intensity in industrial waste gas and solid wastes, not in industrial waste water as the water polluted industries are prohibited from being transferred. Regional analysis shows that eastern Guangdong sees a faster growth in the three pollutants, and western Guangdong and the three cities adjacent to the core cities in Pearl River Delta witness a faster growth in waste gas; western and northern Guangdong, where the main rivers are polled into the Pearl River, show a decline in industrial waste water. The channel check reveals that the industry upgrade transfers pollution both by more industry production and more polluted industry in the less developed regions. Consequently, the industry upgrade in Pearl River Delta does transfer pollution within Guangdong, depending on the policy option and regional location. © 2019 Elsevier Ltd. All rights reserved.

Keywords: Industry upgrade Pollution transfer Natural experiment China

1. Introduction China falls into a dilemma between cleaner environment and faster economic growth after years of rapid economic growth since reform and opening in 1978, and it tries to achieve both targets by upgrading the industry in developed regions and transferring the lagged behind industries to the less developed areas. Since two control zones policy was implemented in 1998, which aims to reduce the pollution by SO2 and acid rain in some cities, more and more industrial enterprises have been relocated from the eastern areas to the middle and western regions. As we can see in Fig. 1, between 1997 and 2015, the share of the industrial value added in the eastern regions dropped from 61.39% to 56.14%, while the share in the middle regions rose from 23.32% to 25.08%, and the share in the western regions rose from 15.29% to 18.78%. At the same time,

* Corresponding author. E-mail addresses: [email protected] (D. Wei), [email protected] (Y. Liu), [email protected] (N. Zhang). 1 Dongxia Wei and Yuan Liu marked as contributed equally. https://doi.org/10.1016/j.jclepro.2019.04.294 0959-6526/© 2019 Elsevier Ltd. All rights reserved.

the western regions see a 3.13 percentage rise in the share of industrial waste gas, and an 8.27 percentage rise in the share of industrial solid wastes, though witness a 2.17 percentage decline in the share of industrial waste water. It seems that the industrial pollution and production are synchronously relocated from the developed areas to the less developed regions, particularly to the western provinces. Therefore, the energy efficiency in the eastern and central regions is stronger than that in the western regions(Xu et al., 2017). However, rare empirical study testifies such causal effect between industry upgrade in developed areas and the pollution transfer to less developed regions in China, because it is difficult to measure the domestic industry relocation. For example, most of the existing studies focus on the effect of FDI on the pollution to test the Pollution Haven Hypothesis (Eskeland and Harrison, 2003; He, 2006; Rezza, 2013; Wang and Chen, 2014; Sapkota and Bastola, 2017). Yet it is not suitable to testify the domestic industry transfer as most the relocated enterprises are not foreign companies but domestic firms. Other studies such as Chen (2007), Dou and Shen (2014) tried to use some index like Location Quotient to indirectly measure industry transfer, but it is also invalid to examine the causal effect as the

D. Wei et al. / Journal of Cleaner Production 229 (2019) 902e910

A: Share of Industrial Value Added 100 90 80 70

Western

B: Share of Industrial Waste Gas 100 90

Western

80

Middle

70

60

60

50

50

40

30

Eastern

Middle

40 30

20

20

10

10

0

0

Eastern

C: Share of Industrial Waste Water 100 90

D: Share of Industrial Solid Wastes 100

Western

80

90 70

Middle

60

50

50

40

40

30 20

Western

80

70 60

903

Middle

30

Eastern

20

10

10

0

0

Eastern

Fig. 1. The Share of Industrial Value Added and Industrial Wastes in three Regions in China Source: National Bureau of Statistics of China, 1998e2016; National Bureau of Statistics of China, Ministry of Environment Protection, 2010e2016.

index may overestimate the industry transfer when the lagged behind industries are relocated not to the inland but to the abroad. It is still a challenge to identify the causal effect of domestic industry upgrade on pollution transfer. Guangdong province, as the pioneer in reform and opening in China, carried out a development strategy named “Double Transfers” in 2008. According to the development strategy, the laborintensive industry shall be transferred from Pearl River Delta to the less developed regions in Guangdong; the skilled labor in less developed regions shall be transferred to the Pearl River Delta, and the rest labor force shall be transferred to the local secondary and tertiary industry(Wang, 2010). Until May 2011, 4260 enterprises were removed from the six cities in the core Pearl River Delta, 30811 enterprises were closed, and 41390 backward enterprises were eliminated in Pearl River Delta. At the same time, 35 industry parks were built or upgraded in the less developed regions, the project quantity and investment fund in these parks amounted to 2988 items and 702.97 billion yuan(Yang and Mao, 2014). Hence, the “Double Transfers” policy in Guangdong provides us a natural experiment to examine whether industry relocation brings pollution transfer, which kinds of pollutants it would cause, and how the pollution transfer would happen if the causal effect is demonstrated. The answers to the above questions are not only important to Guangdong province, but also significant to the whole country as the industry relocation are going on in China. By using the prefecture level panel data within Guangdong province and the Difference in Difference method, we find that the less developed regions see faster growth in industrial waste gas and solid wastes due to the industry upgrade in Pearl River Delta. However, we see no any effect on industrial waste water because the water polluted industries are prohibited from being transferred to the less developed regions where the upstream of Pear River locates. The regional analysis finds that eastern Guangdong witnesses a significant increase in all the three pollutants, western

Guangdong and the three cities adjacent to the core Pearl River Delta see a significant growth in waste gas, northern Guangdong sees no any change in industrial pollution. Further test finds that the industry upgrade causes pollution transfer by augmenting both the industry production and the pollution intensity in less developed regions. In summary, the industry upgrade in Guangdong province since 2008 does transfer pollution, but such effect depends on the policy option and regional location. Our paper makes innovation both in methodology and policy implication. Methodologically, we use the identify strategy of Difference in Difference to examine the causality between industry upgrade and pollution transfers. The parallel trend test in Fig. 5 shows that our model can provide such a causality examination. Considering the policy implication, we find that Guangdong provincial government carried out a regional bias policy in environment protection, which gives priority to the Pearl River Delta and pays more attention to the environment of the developed regions. The regional bias policy does not reduce but transfer the pollution from developed regions to the less developed areas. It can explain why China has fallen into a pollution trap in transition discussed by Miao and He (2018). Our paper also makes contributions in the related literature. Firstly, after reform and opening in 1978, the environment pollution becomes increasingly worse in China with rapid economic growth, the developed regions in eastern China become the pollution havens for rapid growing FDI(Xia, 1995). From the beginning of 21st century, to upgrade the industry and improve the environment, the developed regions have been transferring the backward industries to less developed regions in middle and western regions, which may become the new pollution havens in China(Yang et al., 2006; Dou and Shen, 2014). The recently literature also find that China has fallen into a pollution trap because pollution import from developed countries and pollution export to the other developing countries happen simultaneously in China(Cai

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et al., 2018; Mao and He, 2018).The new pollution havens are not caused by the new FDI, but by the existing industry within China. Rare evidence shows the pollution in less developed regions are transferred from developed regions within China, since the current studies mainly identify how FDI causes pollution(Wei et al., 2010; Bao and Chen, 2012). The industry transfer in Guangdong since 2008 provides us a natural experiment to identify the causal effect of domestic industry relocation on environment pollution, and it has important inspiration on how to protect the less developed regions’ environment during the ongoing industry transfer in China, not only by focusing on FDI, but also by paying attention to domestic firms. Secondary, the pollution transfer driven by environment regulation attracts wide attention after Copeland and Taylor (1994, 2003) put forward the pollution havens hypothesis. However, the empirical findings on pollution havens are relatively controversial. On the one hand, Antweiler et al. (2001) find that the international trade decrease the pollutant (SO2) emission, and most studies use cross sectional data in U.S. find weak evidence for the existence of pollution havens (Jeppsen et al., 2002). On the other hand, more studies find stronger evidence in favor of pollution haven hypothesis (Gray, 1997; List and Co, 2000; Ederington et al., 2005; Tang, 2015). New evidences show that more stringent environment regulation will relocate the polluting intensive firms and industries in China (Wu et al., 2017; Zheng and Shi, 2017). As we see, the existing studies mainly focus on how environment regulation influences firms’ location, the causal effect between industry relocation and pollution transfer seems so obvious that rare studies examine whether the relocation of the industries or firms bring pollution transfer. Using the natural experiment in Guangdong province, we show that the connection between industries relocation and pollution transfer shall not be taken for granted, it depends on the policy option and region locations. Finally, the studies focusing on China show that the local governments do response to the Central's pollution regulation, but such response may cause unintended consequence. For example, the water pollution may concentrate in the downstream in one province and hence pollute thy neighbor when pollution reduction was imposed on each province(Cai et al., 2016). Water polluted industries were transferred from downstream areas to upstream regions for lack of coordination among local governments (Chen et al., 2018). By contrary, our empirical study finds that the water pollution decline in the western and northern Guangdong where the rivers enter into the Pear River, while the water pollution deteriorates in the eastern Guangdong where the river enter into the sea. The evidence shows that the environment policy will take into account the pollution externality when the decision maker values the impact of pollution on the political center. The rest of this paper is arranged as following. Section two introduces the policy and practice of industry upgrade in Guangdong. Section three describes the identify strategy and data. Section four discusses the empirical results. A conclusion is made in section five. 2. Industry upgrade within Guangdong: policy and practice Guangdong province faces deep structural problem after years’ rapid development. First, the ratio of GDP per capita between Pearl River Delta and the rest regions widened from 3:1 in 2000 to 3.9:1 in 2007(Statistical Bureau of Guangdong Province, 2001), the regional imbalance within Guangdong becomes increasingly prominent. Second, the regions in Pearl River Delta face pressing pressure to upgrade their industry for increasingly unavailability of construction land, stringent environment regulation and costly labor force. Particularly, the cities in Pearl River Delta has introduced more stringent environment regulation after 2005, and some pollution intensive enterprises were forced to shut down or remove

in cities such as Dongguan and Shenzhen (Xu and Liang, 2011). In March 2005, Guangdong provincial government issued a public document named “The Opinions on Promoting Industry Transfer Jointly by the Pearl River Delta and the Less Developed Regions in Guangdong Province”. The Opinions suggested that the governments encourage the Pearl River Delta transfer its industry to the less developed regions to promote the industry upgrade in Pearl River Delta and to accelerate economic growth in the rest regions in Guangdong. Industry transfer parks were built in the less developed regions pushed by the Opinions, but the effective scale of the industry parks and the quantity of enterprise enrolled in the industry parks were quite limited for lack of strong financial subsidy and political mobilization. In May 2008, a new document named “The Decision to Promote Industry and Labor Transfer in Guangdong” was jointly issued by the provincial CPC committee and government to push a new round of industry upgrade. Contrary to the Opinions in 2005, the Decision in 2008 provided a huge sum of financial subsidy amounted to over 18 billion yuan for the industry and labor transfer. The new round of industry transfer undoubtedly has a far reaching influence on the economy and environment in Guangdong. The Decision requires that the local governments shall strengthen environment protection by prohibiting introducing the obsolete projects which are not accord with the industry policy and strictly controlling the restricted projects. It is emphasized that environment protection is the same important as the industry development and the construction of industry parks. However, the industry transfer may play a negative effect on the environment in less developed regions. According to “the Instruction Opinions of Regional Distribution in Industry Transfer in Guangdong Province” in May 2008, the policy encourages the Pearl River Delta transfer the labor intensive industry, resource intensive industry and processing manufacture among capital intensive industry, which includes pollution intensive industries such as ceramics, cement and building materials, plastic products, nonferrous metal. It is worthy to note that the Instruction Opinions explicitly prohibits the less developed regions introducing the following three kinds of projects: (1) the projects that would destroy the ecological environment especially the water resource; (2) the projects whose waste water discharged is not accord with the water quality requirement in less developed regions; (3) the projects that may have potential accident threat and cannot guarantee the safety of drinking water around the location of the projects. As we can see, the policy ranks highly on the potential water pollution caused by industry transfer, probably because the drinking water in Pearl River Delta is originated from the Beijiang River in northern Guangdong and Xijiang River in western Guangdong. However, the Instruction Opinions does not provide a clear industries list that shall be prohibited except for water polluted projects. The main method of industry transfer is to build industry transfer parks jointly by Pearl River Delta and the less developed regions. After the Opinions was issued in 2005, six industry transfer parks were affirmed as provincial level parks in 2006, another eight parks were affirmed in 2007. After the Decision was issued, six, twelve, one and two extra parks were affirmed respectively from 2008 to 2011. After 2011, no any new industrial park was affirmed, while the existing parks were merged and enlarged to augment the capability to accommodate the transferred enterprises. According to the official statistics, there were thirty five provincial level industry parks across the less developed regions in Guangdong until March 2011. Until May 2011, 4260 enterprises were removed from the six cities in Pearl River Delta, and 30811 enterprises were shut down, 41390 backward enterprises were eliminated in Pearl River Delta (Yang and Mao, 2014). According to an investigation by the Economic and Information

D. Wei et al. / Journal of Cleaner Production 229 (2019) 902e910

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Difference (DID) method to identify the pollution transferring effect of industry upgrade. The baseline model is set as equation (1).

polutionit ¼ a0 þ a1 regioni þ a2 year > 2007 þ a3 regioni  year > 2007 þ cityi þ yeart þ uit

Fig. 2. The geographical distribution of industry transfer within Guangdong. Source: Yang and Mao (2014).

Commission of Guangdong province in 2011 (Yang and Mao, 2014), among the sampled 1946 enterprise in the thirty five industry parks, 457 enterprises came from Pearl Delta River, 196 ones were wholly removed, and 261 ones were partly removed. As Fig. 2 shown, of the 457 enterprises, 133 from Shenzhen, 111 from Guangzhou, 100 from Foshan, 49 from Zhongshan, 11 from Zhuhai. Correspondingly, these enterprises were relocated in the less developed regions within Guangdong except for Jieyang and Shantou. The 457 transferred enterprises belong to thirty two-digit industries, most of which are pollution intensive. For example, three enterprises belong to the industry of manufacture of paper and paper products, whose Pollution Density Index (PDI) 2of waste water is high to 12.37; seventeen enterprises belong to the industry of manufacture of non-metallic mineral products, whose PDI of waste gas and solid waste are high to 3.69 and 4.08 respectively; sixty eight enterprises belong to the industry of manufacture of raw chemical materials and chemical products, whose PDI of the three pollutants are 2.24, 1.1, 1.51 respectively. The polluted intensive industries may probably deteriorate the environment in the less developed regions, though the environment in Pearl River Delta may partly improve after industry upgrade, as Xu and Lin (2018) demonstrate that high-tech industry is beneficial to reduce CO2 emissions. However, the causal effect between industry upgrade and pollution transfer within Guangdong province need to be examined carefully. 3. Model and data The practice of industry transfer in Guangdong provides a natural experiment for us to test whether and how the industry upgrade in developed regions brings pollution in the less developed regions. We use a panel data of twenty one prefectures in Guangdong province from 2000 to 2016 and employ Difference-in-

In equation (1), pollutionit represents the discharged pollutant in city i and year t, including industrial waste water discharged, industrial waste gas emission, and the produced industrial solid wastes. We use both the log function of the volume and the intensity (volume/industry gross output) of these three pollutants to measure the pollution effect. regioni is a dummy variable, where 0 represents the nine cities in Pearl River Delta where industry update is carried out, 1 represents the other twelve cities in the less developed regions where accepted the transferred industry from Pearl River Delta. year>2007 is a year dummy variable to capture the timing when the policy is practiced. If the year is from 2000 to 2007, the dummy variable equals to 0; otherwise, the dummy variable equals to 1. We further control the city fixed effect and year fixed effect in all the models. a3 , the coefficient of the interaction term of regioni and year>2007, captures the pollution transferring effect. If the coefficient is significantly positive at least in 10% statistical level, we can conclude that the industry upgrade in Pearl River Delta brings pollution transfer to the less developed regions. In order to test the validity of DID setting, we take the interaction terms of regioni and yearly dummy variables basing on equation (1). If the coefficient of the interaction terms of regioni and the yearly dummy before 2008 are not significant at some certain statistical level (for instance15%), the models satisfy the requirement of parallel hypothesis, and DID setting is valid. Otherwise, it is not appropriate for us to examine the pollution transfer effect by DID. This setting also allows us to examine the yearly effect in the pollution transfer. To test the potential regional variation in pollution transfer, we divide the less developed regions into three subgroups. Six cities in eastern Guangdong are Shantou, Chaozhou, Jieyang, Shanwei, Heyuan and Meizhou; four cities in western Guangdong include Zhanjiang, Maoming, Yangjiang and Yunfu; two cities in northern Guangdong contain Shaoguan and Qingyuan. Jiangmen, Zhaoqing and Huizhou, three cities adjacent to the core cities in Pearl River Delta, will also be investigated separately because they have advantage in accepting the transferred induatry. To identify the channel of pollution transfer in industry upgrade within Guangdong, we introduce equation (2) and equation (3). industryit represents the enterprise numbers, gross output value and added value in industry above designated size respectively in city i and year t. We also take the log function of these three variables to get the elasticity coefficient. The other setting in equation (2) is the same as equation (1). Equation (3) introduces the interaction between regioni, year>2007 and industryit. That is to say, we use Difference-Difference-Difference setting to examine does the industry upgrade bring pollution transfer by augmenting the industry production with more pollution intensity in less developed regions.

industryit ¼ b0 þ b1 regioni þ b2 year > 2007 þ b3 regioni  year > 2007 þ cityi þ yeart þ uit

P P30 2 PDIij ¼ ðWij =Qi Þ=ð 30 i¼1 Wij = i¼1 Qi Þ, where Wij is the discharged volume of pollutant j in industry i, Qi is the added value in industry i.

(1)

(2)

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Table 1 Variable summary and basic statistics. Variable Pearl River Delta (Nine Cities) Industrial waste water Industrial waste gas Industrial solid waste Industrial waste water per output Industrial waste gas per output Industrial solid waste per output Industrial gross output Numbers of Industrial Enterprises Gross output of Industrial Enterprises Added-value of Industrial Enterprises Less Developed Regions (Twelve Cities) Industrial waste water Industrial waste gas Industrial solid waste Industrial waste water per output Industrial waste gas per output Industrial solid waste per output Industrial gross output Numbers of Industrial Enterprises Gross output of Industrial Enterprises Added-value of Industrial Enterprises

Obs

Mean

Std. Dev.

Min

Max

Unit

153 153 99 153 153 99 153 153 153 153

1.29 1426.06 253.76 0.00 1.34 0.19 1570.95 3282.97 6184.90 1505.01

0.89 960.33 178.00 0.00 0.87 0.15 1588.58 2181.38 6231.96 1542.58

0.18 88.73 19.30 0.00 0.29 0.01 94.41 599.00 254.01 36.36

6.52 4427.37 692.09 0.01 5.24 0.73 7268.93 8930.00 27292.29 7108.87

108 ton 108 m3 104 ton ton/yuan m3/yuan ton/104 yuan 108 yuan one unit 108 yuan 108 yuan

204 204 132 204 204 132 204 204 204 204

0.42 637.50 241.93 0.00 2.81 0.85 297.40 668.35 888.95 235.07

0.27 565.80 218.57 0.00 2.58 0.96 238.25 493.71 884.24 220.77

0.02 2.00 6.30 0.00 0.02 0.03 16.46 94.00 30.08 8.74

1.52 4400.50 1018.50 0.02 12.51 4.14 1062.01 2580.00 5131.14 1062.21

108 ton 108 m3 104 ton ton/yuan m3/yuan ton/104 yuan 108 yuan one unit 108 yuan 108 yuan

Source: The Guangdong Statistical Yearbook from 2001 to 2017.

between two regions after 2007. As Fig. 3 shows, the annual volume of the three industrial pollutants (waste water, waste gas and solid waste) in the Pearl River Delta increase respectively by 17%, 106.8%, 43.1% after 2007, and the counterparts in the less developed regions increase respectively by 0.9%, 193.4%, 81.8% after 2007. The less developed regions see higher growth in the volume of industrial waste gas and solid waste but lower augment in the volume of industrial waste water than Pearl River Delta after 2007. On the contrary, both regions see a decline in the intensity of the three industrial pollutants but show structural variation. The intensity of the three industrial pollutants in the Pearl River Delta decline respectively by 60.6%, 23.6% and 13.2% after 2007, while the counterparts in the less developed regions decline by 67.5%, 11.5% and 0.5% respectively. It can be seen that the less developed regions does better than Pearl River Delta in the reduction of industrial waste water.

polutionit ¼ d0 þ d1 regioni þ d2 year > 2007 þ d3 industryit þ d4 regioni  year > 2007  industryit þ cityi þ yeart þ uit (3) Table 1 provides a statistical description of all the variables in two regions. Firstly, we investigate the growth of industry output between two regions after 2007. The industrial gross output in the Pearl River Delta increases by 201.7% after 2007, and the counterpart in the less developed regions increases by 214.7% after 2007, slightly more than Pearl River Delta. It indicates that the less developed regions see faster growth in industry production after 2007. The industrial transfer is mainly consisted by the industrial enterprise above designated size, so we further consider the enterprises number, gross output and added value of the industrial enterprise above designated size. These three indexes in Pearl River Delta grows by 45.7%, 230.3% and 209.4% after 2007, while we see much more augments in the less developed regions by 70.4%, 364.1% and 335.8% respectively. Therefore, the industry production increase more rapid in the less developed regions than in the Pearl River Delta. Then we explore the change of the industrial pollutants

4. Result and discussion In this section we try to explore whether the industry upgrade in Pearl River Delta brings pollution transfer in less developed regions, which kinds of pollutants it would cause, and how the pollutants transfer would happen.

B: intensity change of three pollutants after 2007

A: volume change of three pollutants after 2007 10%

250.0%

0.5%

193.4%

200.0%

-11.5%

-10%

-23.6%

150.0%

106.8%

-30%

81.8%

100.0% 50.0%

-13.2%

43.1% 17.0%

-50%

-60.6% -67.5%

0.9% -70%

0.0%

Industrial waste water Industrial waste gas Industrial solid waste Pearl River Delta

Less Developed Regions

waste water per output

waste gas per output

Pearl River Delta

Fig. 3. The Pollutants discharged between two regions.

solid waste per output

Less Developed Regions

D. Wei et al. / Journal of Cleaner Production 229 (2019) 902e910

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Table 2 Industry upgrade and pollution transfer in Guangdong province (baseline regression). Variable

less developed regions less developed regions *year>2007 year>2007 city fixed effect year fixed effect observation R2

waste water

waste gas

solid wastes

waste water per output

waste gas per output

solid wastes per output

(1)

(2)

(3)

(4)

(5)

(6)

***

2.190 (0.165) 0.083 (0.078) 0.388*** (0.142) Yes Yes 357 0.849

***

1.980 (0.198) 0.763*** (0.124) 1.749*** (0.214) Yes Yes 357 0.819

***

0.972 (0.234) 0.310** (0.153) 0.837*** (0.152) Yes Yes 231 0.857

***

0.898 (0.159) 0.139 (0.086) 1.623*** (0.157) Yes Yes 357 0.812

***

1.109 (0.174) 0.707*** (0.128) 0.261 (0.227) Yes Yes 357 0.683

2.168*** (0.224) 0.264* (0.142) 0.224 (0.148) Yes Yes 231 0.931

Note: Robust standard errors in parentheses;***p < 0.01, **p < 0.05, *p < 0.1. The following tables have the same model setting and only report the results of key variables for sake of simplicity.

4.1. Baseline estimation The baseline estimation can be seen in Table 2. We find that less developed regions witness less volume of the three industrial pollutants than the Pearl River Delta by 219%, 198% and 97.2% respectively, but see much more intensive pollution than the Pearl River Delta by 89.8%, 110.9% and 216.8% respectively. It indicates that although the gross volume of the pollutants are lower in the less developed regions, but the industries are much more polluted in the less developed regions. Considering the time variation, the volume of all the three pollutants increases after 2007, while the pollution intensity of the three pollutants decline after 2007, although the decline of the pollution intensity of waste gas and solid waste is not so significant in statistics. This finding demonstrates that the gross volume of pollutants continue to grow after 2007 when the global financial crisis spread all over the world, but the backward industries are partly eliminated in Guangdong so that the pollution intensity declines after industry upgrade. The above analysis is not concerned about the pollution transfer effect. We go to discuss the interaction term. The coefficients of the interaction terms show that the industry upgrade in Pearl River Delta does bring pollution transfer in less developed regions in industrial waste gas and solid waste both in volume and intensity, while there are no significant change in industrial waste water. Specifically, the volume of industrial waste gas and solid waste increase by 76.3% and 31% respectively in less developed regions because of the policy of industrial upgrade. The less developed regions see quite similar growth in the pollution intensity in industrial waste gas and solid and waste for the industry upgrade. Interestingly, the coefficients of the interaction terms in row (1) and row (4) are negative, although it is not so significant in statistics. The reason why we do not see any pollution transfer in industrial waste water may be that, the provincial government prohibits the water polluted industries being transferred from Pearl River Delta to less developed regions. Consequently, the volume of the industrial waste water in less developed regions does not increase but decline slightly after 2007. Moreover, the coefficient of the interaction terms in model (4) is 0.139 and significant at 20%. It weakly indicates that the intensity of waste water in less developed regions decreases by 13.9% due to the industry policy. 4.2. Regional heterogeneity The less developed regions may show sharp variation in the industries transfer. On the one hand, the three cities adjacent to the core cities in Pearl River Delta have location advantage and better industry infrastructure to accept the transferred industry from the

core Pearl River Delta, and they also share the same industry policy as the other cities in the less developed regions. On the other hand, according to the Instruction Opinions of the Economic Commission of Guangdong Province, the western, eastern and northern cities shall accept different industries transferred from Pearl River Delta, so the pollution transfer may show regional variation. As Table 3 shown, we see pollution transfer in eastern Guangdong in all the three pollutants, while the industry upgrade reduce the water pollution in western and northern Guangdong. It indicates that as the main stream of Pearl River, the water are better protected in the western and northern Guangdong during the industry transfer. The industry upgrade raises the waste gas emission both in western Guangdong and the three cities adjacent to the core cities in Pearl River Delta, but it has no any effect on industrial solid waste in these two regions. It is worthy to note that northern Guangdong witnesses no more waste gas and solid waste during the industries transfer. In one word, eastern Guangdong is the most polluted region, and the northern Guangdong is the cleanest one during the industry transfer. Western Guangdong and the three cities see more waste gas, while the water in western and northern Guangdong are well protected during the industries transfer. It can be seen that the western and northern Guangdong see less waste water, but eastern Guangdong witness more waste water during the industry transfer, probably because the provincial government prohibit the water polluted industries being transferring from Pearl River Delta to the less developed regions, but the policy maker has regional bias. As Fig. 4 shown, the Xijiang River in western Guangdong and the Beijiang River in northern Guangdong are polled into Pearl River and then enter the sea, while the Hanjiang River and Rongjiang River in eastern Guangdong enter the sea directly. That is to say, the water pollution in western and northern Guangdong will have negative effect on the Pearl River Delta, while the water pollution in eastern Guangdong will have no such effect. Logically, the water pollution in eastern Guangdong is less strictly prohibited by the provincial and local governments, so that the water pollution in eastern Guangdong is much more intense. 4.3. Time variation Two issues shall be noted here. First, is the DID setting valid? Second, does the pollution effect attenuate or strengthen as time pass? Both issues can be detected by introducing the interaction terms of region and yearly dummy, and the results are shown in Fig. 5. Compared to the Pearl River Delta, the volume and intensity of industrial waste water in the less developed regions rose lightly only in 2004 and 2005, and there are no any difference of the waste

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Table 3 Industry upgrade and regional environment pollution. variable

waste gas

solid wastes

waste water per output

waste gas per output

solid wastes per output

(1)

(2)

(3)

(4)

(5)

(6)

***

western*year>2007 northern Guangdong*year>2007 eastern Guangdong*year>2007 three cities*year>2007 Observations R-squared

waste water

0.326 (0.099) 0.390*** (0.124) 0.244** (0.115) 0.094 (0.099) 357 0.864

***

0.392 (0.137) 0.083 (0.118) 1.679*** (0.186) 0.664*** (0.105) 357 0.860

0.289 (0.217) 0.016 (0.186) 0.627*** (0.213) 0.291 (0.197) 231 0.866

***

0.292 (0.100) 0.545*** (0.157) 0.190 (0.128) 0.137 (0.112) 357 0.828

***

0.426 (0.130) 0.072 (0.119) 1.625*** (0.193) 0.707*** (0.119) 357 0.754

0.099 (0.191) 0.029 (0.189) 0.453** (0.201) 0.029 (0.207) 231 0.933

Note: the regional dummy variables and the "year>2007", as well as the city fixed effect and the year fixed effect are controlled in the regression and their coefficients are not reported in the table for space limitation.

dummy in the waste water models are not significant after 2007, which indicates that the waste water pollution between two regions is indifferent after the policy of industry upgrade is practiced. However, we see that the pollution effect of waste gas become significant right after 2008 and keep being significant except for 2011. Because the data of solid waste before 2007 is not available, we can only observe the change of this pollutant after 2006. It is found that compared to Pearl River Delta, the volume and the intensity of solid waste in less developed regions increase significantly in 2010, 2011, 2015 and 2016, and the pollution effect is not significant in 2008, 2009, 2012, 2013 and 2014, which shows time variation in the pollution effect in solid waste. 4.4. Channel analysis

Fig. 4. Rivers distribution in Guangdong.

water between two regions in any other year before 2008. There are no any difference of the waste gas and solid waste both in volume and intensity between two regions before 2008. Therefore, we can conclude that the DID setting in our models basically satisfy the parallel hypothesis. The coefficients of the interaction terms of region and yearly

The above analysis demonstrates that the industry upgrade in Pearl River Delta does bring pollution transfer in less developed regions. The data of relocated enterprises are not available for us, but we can observe that the industry production in the less developed regions will grow if the industries are transferred to the regions. Therefore, we employ the enterprise numbers (en), gross output value (gov) and added value (av) of industry above Designated Size as the proxies of industry upgrade to test the channel of pollution transfer. As Table 4 shown, the less developed regions see less enterprises numbers, gross output value and added value than the Pearl River

Fig. 5. The time variation of the pollution effect of the three pollutants.

D. Wei et al. / Journal of Cleaner Production 229 (2019) 902e910

909

Table 4 Industry upgrade and enterprise relocation. Variables

Log (enterprise numbers)

Log (gross output value)

Log (added value)

(1)

(2)

(3)

***

***

less developed regions *year>2007 year>2007 observation R2

3.565*** (0.065) 0.303*** (0.056) 2.335*** (0.097) 357 0.968

3.442 (0.106) 0.354*** (0.060) 2.374*** (0.109) 357 0.964

2.574 (0.098) 0.135*** (0.046) 0.711*** (0.096) 357 0.963

less developed regions

Table 5 Industry upgrade, enterprise relocation and pollution transfer. variable

waste gas

regions*year>2007*log (en)

0.092*** (0.017)

(1)

solid waste (2)

(4)

regions*year>2007*log (av) 357 0.824

(5)

(6)

0.041* (0.023) 0.054*** (0.015)

regions*year>2007*log (gov)

Observations R-squared

(3)

357 0.850

Delta in the whole period, but the industry upgrade in Pearl River Delta since 2008 does raise the industrial enterprise number, gross output value and added value in less developed regions respectively by 13.5%, 35.4%, and 30.3%. In order to test the channel of pollution transferring effect, we introduce the interaction of region, year>2007 and the proxy of industry transfer. Since only industrial waste gas and solid waste witness pollution transferring effect, we only investigate these two pollutants in Table 5. It is found that, compared to Pearl River Delta, one percent growth of enterprise number, or gross output value, or added value of industrial enterprises above the designated sized in the less developed regions, will raise much more industrial waste gas by 9.2%, 5.4%, 6.1% respectively, or raise much more industrial solid waste by 4.1%, 2.3%, 3.1% respectively in the same regions, though the last two coefficients are not so significant in statistics. In one word, the industries upgrade in Pearl River Delta does bring pollution for the less developed regions both by more industry production and more intensive pollution production.

5. Conclusion China is pushing the industry upgrade by relocating the backward industries from developed regions to less developed areas, but rare studies examine the causal link between industry upgrade and pollution transfer. The practice of the industry upgrade in Guangdong province since 2008 provides a natural experiment to testify the impact of industry upgrade on pollution transfer. By using the prefecture-level panel data of Guangdong province and the DID setting, we find that the industry upgrade in Pearl River Delta does bring pollution in the less developed region, representing by more volume and intensity in industrial waste gas and solid waste, while there are no significant growth in industrial waste water in less developed regions because the policy value highly the impact of the water pollution in the less developed regions on Peal River, which shows an obvious regional bias in environment protection. The experience of industry upgrade in Guangdong is universally

0.023 (0.018) 0.061*** (0.017) 357 0.854

231 0.857

231 0.878

0.031 (0.023) 231 0.875

meaningful in China. The eastern regions face an urgent task to upgrade their industry after years’ rapid economic growth, and it is a primary choice to transfer the lagged behind industry to the less developed regions for the eastern China. The local governments in the less developed regions have strong motivation to develop the economy by accepting the backward industry, in spite of the cost of environment pollution. Consequently, the less developed regions in China may fall into a vicious cycle, where economic growth dominates environment protection. However, the developed regions is not free from environment pollution despite the polluted industry has been transferred to the other areas for the externality of pollution. It is a vital but unsettled issue that how to stimulate the local governments to keep economy growth with strict environment protection in China. Furthermore, our case study also has implication for the other developing countries. Particularly, we indicate that the local government carries out a regional bias policy in environment protection, which gives priority to the Pearl River Delta and pays more attention to the environment of the developed regions. The regional bias policy does not reduce but transfer the pollution from developed regions to the less developed areas. It may be the true reason why a transiting country like China falls into the pollution trap. The other developing countries shall learn something from China when they make an environment policy to eliminate rather than shift pollution within one country. Acknowledgement This paper was supported by the National Key Research and Development of China (2018YFC0213600). References Antweiler, W., Copeland, B.R., Taylor, M.S., 2001. Is free trade good for the Environment? Am. Econ. Rev. 91, 877e908. Bao, Qun, Chen, Yuanyuan, 2012. Foreign investment, pollution sector transfer and host countries' environment quality (in Chinese). Ind. Econ. Stud. 61, 1e9. Cai, Hongbin, Chen, Yuyu, Gong, Qing, 2016. Polluting thy neighbor: unintended consequences of China's pollution reduction mandates. J. Environ. Econ. Manag.

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