Date of Publication: November 28, 2012

Author: Ruixue Jia

Summary:

This paper demonstrates that China’s high environmental pollution levels can partly be explained by the incentives embedded in the country’s political institutions. Guided by a simple career concerns model with the choice of dirty and clean technologies, I examine empirically how promotion incentives of provincial governors affect pollution. To find exogenous variation in promotion incentives, I explore within-governor variation in connections with key officials due to reshuffling at the center and document the fact that connections are complementary to economic performance for governors’ promotion. The data confirms the model prediction that connections increase pollution. Auxiliary predictions of the model are also confirmed by the data. First, a higher relative price of clean technologies increases the use of dirty technologies, and this substitution effect is strengthened by connections. Second, the impact of connections on pollution is more than proportional to their impact on GDP. The evidence from different sources of data is consistent with the interpretation that connections affect the efforts and policy choices of politicians

Link to Full Reading:

http://www.parisschoolofeconomics.eu/docs/ydepot/semin/texte1213/POL2013RUI.pdf