Tuesday, April 15, 2014

The Silver Lining of Beijing Smog?

The China Daily  reports that foreign firms in China are seeking out 2nd and 3rd tier Chinese cities that feature blue skies because Beijing is just too polluted.  The introduction of a competitive system of cities would make urban China an even stronger nation.  The centralization of the powerful government in Beijing means that rent seeking firms have had strong incentives to locate in Beijing as they seek to curry favor with the central government.   Ades and Glaeser analyze the same issue in the case of South America.

An unintended consequence of decentralizing economic activity to 2nd and 3rd tier cities would be to create a system of cities in which firms sort across space based on the comparative advantage of different areas (i.e cheap land, cheap labor, cheap electricity, access to export markets) and workers sort across space based on their skills and their human capital.  In the U.S such sorting is common, if China can retreat from central planning then its economic growth will accelerate.