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Valuing Water Purification Services of Forests: A Production Function Approach using Panel Data from China’s Sichuan Province

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  • Liu, Zhaoyang

Abstract

The water purification functions of forests represent one of the most frequently invoked examples of nonmarket ecosystem services that are economically valuable. Yet, there has been a paucity of statistical estimates that robustly quantify such benefits. This study enriches this thin evidence base through valuing forests’ water purification services in the form of the ensuing cost savings of municipal drinking water treatment, using a rich panel dataset from China’s Sichuan province. The panel nature of the dataset has enabled the estimation of fixed effects models, which control for a wide range of observed and unobserved factors that might otherwise have biased the estimates of interest. Moreover, this study has undertaken a novel spatial piecewise approach to investigate the spatial patterns of such cost savings delivered by forests at different distances from the water intake point. The estimation results find statistically significant evidence that substantiates the expected cost saving effect of forests only within a 3km radius upstream from the water intake point. This transferrable methodological twist helps facilitate the optimal spatial targeting of forest conservation.

Suggested Citation

  • Liu, Zhaoyang, 2020. "Valuing Water Purification Services of Forests: A Production Function Approach using Panel Data from China’s Sichuan Province," EfD Discussion Paper 20-29, Environment for Development, University of Gothenburg.
    • Handle: RePEc:hhs:gunefd:2020_029
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    References listed on IDEAS

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    1. Yi Jiang & Xiaoting Zheng, 2014. "Private Sector Participation and Performance of Urban Water Utilities in China," Economic Development and Cultural Change, University of Chicago Press, vol. 63(1), pages 155-189.
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    3. Abildtrup, Jens & Garcia, Serge & Stenger, Anne, 2013. "The effect of forest land use on the cost of drinking water supply: A spatial econometric analysis," Ecological Economics, Elsevier, vol. 92(C), pages 126-136.
    4. Li, Li, 2018. "Private sector participation and performance of county water utilities in China," China Economic Review, Elsevier, vol. 52(C), pages 30-53.
    5. Paul L. E. Grieco & Ryan C. McDevitt, 2017. "Productivity and Quality in Health Care: Evidence from the Dialysis Industry," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 84(3), pages 1071-1105.
    6. Diego Herrera & Alicia Ellis & Brendan Fisher & Christopher D. Golden & Kiersten Johnson & Mark Mulligan & Alexander Pfaff & Timothy Treuer & Taylor H. Ricketts, 2017. "Upstream watershed condition predicts rural children’s health across 35 developing countries," Nature Communications, Nature, vol. 8(1), pages 1-8, December.
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    More about this item

    Keywords

    ecosystem service; water purification; forest; valuation; drinking water treatment; production function; spatial piecewise approach; fixed effects panel data model;
    All these keywords.

    JEL classification:

    • Q24 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Land
    • Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water
    • Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects
    • Q57 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Ecological Economics

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