Three Essays on Welfare Analysis of Water Infrastructure

The first chapter sets the stage by detailing the water conditions in northern and southern China, providing the policy background for the South-North Water Diversion Project (SNWDP). It outlines the implementation details of the SNWDP and describes the major data sources used in this dissertation. Additionally, it presents preliminary evidence on the impact of groundwater access on agricultural yields in the study area, using a Regression Discontinuity (RD) design. The analysis focuses on a critical groundwater depth of 8 meters, identified as a cost-increasing threshold for water extraction. Preliminary findings from nonparametric RD estimates indicate a significant reduction in crop yields when groundwater depth exceeds 8 meters, quantified as approximately half a standard deviation of the total sample. These results motivate the subsequent chapters to explore the broader impacts of the water diversion project on the environment and local economy in the water-receiving areas.

The second chapter estimates the environmental impacts and valuation of the Central Route of the SNWDP. Using remote-sensing data for vegetation indices and a comprehensive dataset of urban land transactions, a Difference-in-Difference approach is employed to analyze the project’s effects on nearby ecological conditions and urban land prices. The analysis reveals significant improvements in vegetation within a 5-km radius of the canal post-operation, along with a substantial increase in urban land prices. A heterogeneity analysis across different land use types indicates that these environmental improvements are factored into land prices, underscoring the substantial environmental value and complementing the concurrent welfare analysis of water infrastructure.

The third chapter assesses the local economic impacts of the central route of the SNWDP. Utilizing the policy rollout and a staggered Difference-in-Difference approach, the analysis focuses on the policy’s effects on economic development and agricultural outputs. The findings show increased economic activity in water-receiving counties, as evidenced by enhanced nightlight intensity in both urban and rural areas. However, despite these economic gains, there are negative impacts on agricultural yields. Additionally, the poultry eggs sector has experienced declines, possibly due to stringent water quality regulations along the canal. These results suggest that while the project stimulates certain economic sectors, it may also lead to adverse effects in some agricultural sectors, highlighting a displacement effect.