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

Agricultural water pollution from the livestock industry is a growing concern in China and globally. As opposed to size-based regulations targeting larger facilities 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 (DCZ), which prohibits new hog facilities construction and encourages hog farms to relocate to other regions. Leveraging a novel identification strategy, synthetic difference-indifferences, 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 inventories. 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 regulations led to an 11.3% reduction in hog inventories after the environmental regulations in the counties in DCZ provinces, mainly resulting from extensive margin changes due to the closures of existing hog farms. This is equivalent to a loss of over 15 million head of pigs or over U.S. $4.4 billion reduction in the DCZ hog sectoral revenue. We also find the treatment effects vary substantially both within and across DCZ provinces: wealthier urban provinces such as Zhejiang experienced reduction in hog and sow inventories of over 50%; and counties upstream of big cities or those designated as main hog counties saw steeper declines as well.