Place-based policies, agglomeration economics, and environmental impacts: evidence from China's Xinjiang targeted pairing aid program

Concerns about opportunistic behaviors by governments and their failure to recognize local needs are significant issues with place-based policies. In China's aid program targeted at Xinjiang, rather than solely relying on fiscal transfers and centralized decision-making, there was encouragement for the involvement of state-owned enterprises and direct cooperation between aid providers and recipients. While these arrangements have helped the program succeed in addressing concerns related to place-based policies and have contributed to economic growth in recipient areas, there are potential negative impacts on the local environment, leading to what is termed as a pollution heaven scenario. Analyzing of data from 72 ethnic cities in China using a difference-in-differences approach, we demonstrate that the program resulted in notable increases in local GDP and PM2.5 concentrations, accompanied by expansion of polluting industries. This study is pertinent to ongoing discussions in place-based policy research and offers policy insights both domestically and internationally.