Estimating the Impact of Air Pollution on Inbound Tourism in China: An Analysis Based on Regression Discontinuity Design

Prior studies have suggested the existence of a reverse causality relationship between air quality and tourism development: while air quality influences tourism, dynamic segments of the tourism industry (e.g., cruising, airline, foodservice) have impacts on air quality. This reverse causality hinders a precise estimate on the effect of air pollution on tourism development within a conventional econometric framework, since the variable of air pollution is endogenous. This study estimates the impact of air pollution on the inbound tourism industry in China, by controlling for endogeneity based on a regression discontinuity design (RDD). The estimate is derived from a quasi-experiment generated by China's Huai River Policy, which subsidizes coal for winter heating in northern Chinese cities. By analyzing data from 274 Chinese cities during the period 2009-2012, it is found that air pollution significantly reduces the international inbound tourism: an increase of PM10 (particulate matter smaller than 10 mu m) by 0.1 mg/m3 will cause a decline in the tourism receipts-to-local gross domestic product (GDP) ratio by 0.45 percentage points. This study also highlights the importance of controlling for endogeneity, since the detrimental impact of air pollution would otherwise be considerably underestimated. This study further demonstrates that, although air pollution is positively correlated with the average expenditure of each tourist, it substantially depresses the number of inbound tourists. The results imply that air quality could potentially influence inbound tourists' city destination choices. However, it is interesting to note that travelers in air polluted cities in China tend to spend more money.