Can Water Rights Trading Scheme Promote Regional Water Conservation in China? Evidence from a Time-Varying DID Analysis

Using the panel data of 30 provinces in China from 1998 to 2017, we adopt a time-varying difference-in-differences (time-varying DID) model to estimate the impact of water rights trading scheme on regional water consumption. The results show that water rights trading can significantly promote water conservation in the pilot regions by 3.1% compared to that in the non-pilot regions, and a series of robustness tests show consistent results. Policy effects are mainly driven by improving water-use efficiency and adjusting water structure; that is, by transferring water resources from the agricultural sector to the other sectors, agricultural water efficiency is improved and water conflict among sectors is alleviated; thus, water saving is achieved. In addition, by constructing two indexes of regional water pressure and tradable water resources, our heterogeneity analysis shows that water rights trading performs better in areas with high water pressure and large tradable water resources. Under the high pressure of large water use and low water endowment, water rights trading will evidently reduce water consumption more so than in the low-pressure regions, and with water rights trading, it is hard to achieve a policy effect in regions without sufficient tradable water resources. This paper provides important policy implications for China for further promoting the water rights trading scheme in the field of resource conservation.