Strategic Cross-Border Water Pollution in Songliao Basin

This paper studies the two-fold impacts of environment regulation related to local officer promotion and water quality assessment of cross-border sections within the framework of the 11th Five-Year Plan. We employ the difference-in-difference (DID) and difference-in-difference-in-difference (DDD) models to a unique dataset on water polluting activities in Songliao Basin counties from 2003 to 2009. Empirical results show that on one hand, regulation and water pollution are negatively correlated, the stricter the regulation is, the less water pollution happens. On the other hand, as no explicit accountability and synergetic governance system were set up by the 11th Five-Year Plan, prefecture-level municipal governments tend to exert the least enforcement efforts in the most downstream counties. We find the evidence of strategic water polluting that the overall output value, new entry into and old business water polluting industries are significantly higher in the most downstream county of a prefecture-level city, relative to other similar counties.