Water rights and firm productivity: evidence from the water rights trading policy in China

Minhao Qi, Sijie Wei, Tao Lin, Nan Yang and Yuxin Liu

Applied Economics, 2025, vol. 57, issue 42, 6650-6664

Abstract: Industrial firms are significant consumers of freshwater globally, but the impact of water management policies, particularly water rights trading, on their performance is not well understood. This study investigates the impact of the water rights trading policy on firm productivity in China. Employing the difference-in-differences approach and using data from Chinese listed firms during 2009–2019, we find that on average, the water rights trading policy increased the total factor productivity of firms by 6%. This productivity effect is confirmed through several robustness checks. We validate the enhancement of water utilization under the water rights trading policy and find that the productivity improvement effects of the water rights trading policy are mainly through alleviating resource misallocation, stimulating innovation activities and easing financial constraints. Heterogeneity analysis indicates that private firms, firms located in regions with abundant water resources, firms located in areas with more improved water infrastructure and firms operating in high water consumption industries benefit more from the policy. This study emphasizes the importance of water rights trading for industrial firms, demonstrating its effectiveness beyond the agricultural sector.

Date: 2025
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DOI: 10.1080/00036846.2024.2386846

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