The Impact of China’s Place-based Environmental Regulations on its Hog Industry: A Synthetic Difference-in-differences Approach

Nieyan Cheng, Wendong Zhang, Tao Xiong
June 2021  [21-WP 619]

Agricultural water pollution from the livestock industry is a growing concern in China and globally. As opposed to size-based regulations targeting larger facilities as in the United States, China's regulations are place-based in nature. In 2014, China classified eight urban provinces in the southeast as a Development Control Zone, which prohibits new hog facilities construction and encourages hog farms to relocate to other regions. Leveraging a novel identification strategy, synthetic difference-in-differences, and the place-based nature of China's environmental regulations, we provide one of the first systematic analyses of the impacts of the regulations on county-level hog and sow inventory. By relying on synthetic controls constructed with both county and year weights, synthetic difference-in-differences yields a more accurate and doubly robust estimate of regulations' treatment effects. Our results show that, on average, the 2014 regulations led to a 6.4% and 7.4% reduction in hog and sow inventories, respectively, from 2014 to 2017 in the treated counties in Development Control Zone provinces, mainly resulting from extensive margin changes due to the closures of existing hog farms. We also find the treatment effects vary substantially both within and across Development Control Zone provinces: wealthier urban provinces such as Zhejiang experienced greater reduction in hog and sow inventories of over 40%; and counties upstream of big cities or those designated as main hog counties saw steeper declines as well.

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